M&T BANK CORPORATION Corporate Profile and Significant DevelopmentsM&T Bank Corporation ("M&T") is a bank holding company headquartered inBuffalo, New York with consolidated assets of$155.1 billion atDecember 31, 2021 . The consolidated financial information presented herein reflects M&T and all of its subsidiaries, which are referred to collectively as "the Company." M&T's wholly owned bank subsidiaries areManufacturers and Traders Trust Company ("M&T Bank ") andWilmington Trust, National Association ("Wilmington Trust, N.A .").M&T Bank , with total assets of$154.7 billion atDecember 31, 2021 , is aNew York -chartered commercial bank with 688 domestic banking offices inNew York State ,Maryland ,New Jersey ,Pennsylvania ,Delaware ,Connecticut ,Virginia ,West Virginia and theDistrict of Columbia , and a full-service commercial banking office inOntario, Canada .M&T Bank and its subsidiaries offer a broad range of financial services to a diverse base of consumers, businesses, professional clients, governmental entities and financial institutions located in their markets.M&T Bank lends to consumers residing in the states noted above and to small and medium-size businesses based in those areas, although loans are also originated through offices in other states and inOntario, Canada . Certain lending activities are also conducted in other states through various subsidiaries. Trust and other fiduciary services are offered byM&T Bank and through its wholly owned subsidiary,Wilmington Trust Company . Other subsidiaries ofM&T Bank include:M&T Realty Capital 59 -------------------------------------------------------------------------------- Corporation, a multifamily commercial mortgage lender;M&T Securities, Inc. , which provides institutional brokerage and securities services;Wilmington Trust Investment Advisors, Inc. , which serves as an investment advisor to the Wilmington Funds, a family of proprietary mutual funds, and other funds and institutional clients; andM&T Insurance Agency, Inc. , an insurance agency.Wilmington Trust, N.A . is a national bank with total assets of$12.0 billion atDecember 31, 2021 .Wilmington Trust, N.A . and its subsidiaries offer various trust and wealth management services. Financial results during 2020 and 2021 were adversely impacted by the effects of the Coronavirus Disease 2019 ("COVID-19") pandemic. Large portions of theU.S. economy were severely impacted throughout much of those two years and as a result, many commercial and consumer customers were negatively affected. The effects of the pandemic resulted in the Company recognizing an elevated provision for credit losses during 2020 that reflected projections of credit losses based on macroeconomic forecasts that were based on then existing economic conditions. As a result, the Company recorded a provision for credit losses of$800 million in 2020. Improvements in economic conditions and forecasts throughout 2021 led the Company to recognize a provision recapture of$75 million in that year. In response to the pandemic, theFederal Reserve took actions to lower interest rates that have negatively affected the Company's net interest income since the beginning of the pandemic. OnMarch 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law. In addition to providing financial assistance to both businesses and consumers, the CARES Act created a forbearance program for federally-backed mortgage loans, protected borrowers from negative credit reporting due to loan accommodations resulting from the pandemic, and provided financial institutions the option to temporarily suspend certain requirements under GAAP related to troubled debt restructurings to account for the effects of COVID-19. The bank regulatory agencies likewise issued guidance encouraging financial institutions to work prudently with borrowers that were unable to meet their contractual payment obligations because of the effects of COVID-19. That guidance, with concurrence of theFinancial Accounting Standards Board , and provisions of the CARES Act allowed modifications made on a good faith basis in response to COVID-19 to borrowers who were generally current with their payments prior to any relief, to not be treated as troubled debt restructurings nor be reported as past due. The CARES Act also provided funding opportunities for small businesses under the Paycheck Protection Program ("PPP") from approvedSmall Business Administration ("SBA") lenders, includingM&T Bank . For commercial and consumer customers, the Company provided a host of relief options, such as payment deferrals (including maturity extensions), loan covenant waivers and low interest rate loan products.M&T Bank funded approximately$7.0 billion of PPP loans during 2020 and another$2.9 billion in 2021, of which$1.2 billion remained outstanding atDecember 31, 2021 . The national effort to mitigate the pandemic has resulted in a challenging environment for businesses and their employees. The Company has taken actions designed to help provide a safe environment for its customers and employees and to provide relief to customers in a variety of ways. Examples of those actions include: • The deployment of a Pandemic Response Plan to manage the pandemic's effects on operations, employees and customers, including seeking to ensure employee safety, maintaining continuity of operations and service levels for customers, preserving the Company's financial strength, and complying with applicable laws and regulations. Actions have included placing restrictions on travel, implementing social distancing, health screening, sanitation and other protocols, and mandating for all employees whose jobs can be performed remotely to work from home where possible. In accordance with changes in Federal guidelines (e.g. theCenters for Disease Control and Prevention ) and state and local regulations, the Company has begun to roll back certain of these measures; 60 -------------------------------------------------------------------------------- • The vast majority of the Company's non-branch employees continued to work remotely during 2021; the Company is preparing to employ an operating model consisting of onsite, hybrid and fully remote employee work schedules when COVID-19 infections and hospitalizations stabilize; •M&T Bank branches remain open, with open lobbies and normal access to drive-through windows and ATMs; and • Some loan customers are still receiving COVID-19 related relief in various forms, including modification and forbearance requests as ofDecember 31, 2021 as described herein and in note 4 of Notes to Financial Statements. OnFebruary 22, 2021 M&T announced that it had entered into a definitive agreement with People's United Financial, Inc. ("People's United") under which People's United will be acquired by M&T in an all-stock transaction. Pursuant to the terms of the agreement, People's United shareholders will receive consideration valued at .118 of an M&T share in the form of M&T common stock. People's United outstanding preferred stock will be converted to a new series of M&T preferred stock upon completion of the acquisition. The transaction is valued at approximately$7.8 billion (with the price based on M&T's closing price of$153.58 per share as ofDecember 31, 2021 ). As ofDecember 31, 2021 , People's United reported$64.6 billion of assets, including$37.9 billion of loans and$10.8 billion of investment securities,$56.7 billion of liabilities, including$53.8 billion of deposits, and$7.9 billion of stockholders' equity. The merger has been approved by the common shareholders of M&T and People's United, theNew York State Department of Financial Services andConnecticut Department of Banking but remains subject to approval by theBoard of Governors of theFederal Reserve System . The merger is expected to be completed promptly after the parties have obtained approval and satisfied other customary closing conditions. Critical Accounting Estimates The Company's significant accounting policies conform with generally accepted accounting principles ("GAAP") and are described in note 1 of Notes to Financial Statements. In applying those accounting policies, management of the Company is required to exercise judgment in determining many of the methodologies, assumptions and estimates to be utilized. Certain of the critical accounting estimates are more dependent on such judgment and in some cases may contribute to volatility in the Company's reported financial performance should the assumptions and estimates used change over time due to changes in circumstances. The more significant areas in which management of the Company applies critical assumptions and estimates include the following:
• Accounting for credit losses - Effective
adopted amended accounting guidance that impacts how the allowance for
credit losses is determined. Under the new accounting guidance, the
allowance for credit losses represents a valuation account that is
deducted from the amortized cost basis of certain financial assets,
including loans and leases, to present the net amount expected to becollected at the balance sheet date. A provision for credit losses is
recorded to adjust the level of the allowance as deemed necessary by
management. In estimating expected losses in the loan and lease
portfolio, borrower-specific financial data and macro-economic
assumptions are utilized to project losses over a reasonable and
supportable forecast period. For certain loan pools that share similarrisk characteristics, the Company utilizes statistically developed
models to estimate amounts and timing of expected future cash flows,
collateral values and other factors used to determine the borrowers'
abilities to repay obligations. Such models consider historical
correlations of credit losses with various macroeconomic assumptions
including unemployment, gross domestic product and real estate
prices. These forecasts may be adjusted for inherent limitations or
biases of the models. Subsequent to the forecast period, the Company
utilizes longer-term historical loss experience to estimate
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losses over the remaining contractual life of the loans. Prior to 2020,
the allowance for credit losses represented the amount that in
management's judgment reflected incurred credit losses inherent in theloan and lease portfolio as of the balance sheet date. The estimation of
the allowance for credit losses prior to 2020 did not consider
reasonable and supportable forecasts that could have affected the
collectability of the reported amounts. Changes in the circumstances
considered when determining management's estimates and assumptions could
result in changes in those estimates and assumptions, which could result
in adjustment of the allowance for credit losses in future periods. A
discussion of facts and circumstances considered by management in
determining the allowance for credit losses is included herein under the
heading "Provision for Credit Losses" and in note 5 of Notes to
Financial Statements.
• Valuation methodologies - Management of the Company applies various
valuation methodologies to assets and liabilities which often involve a
significant degree of judgment, particularly when liquid markets do not
exist for the particular items being valued. Quoted market prices are
referred to when estimating fair values for certain assets, such astrading assets, most investment securities, and residential real estate
loans held for sale and related commitments. However, for those items
for which an observable liquid market does not exist, management
utilizes significant estimates and assumptions to value such items.
Examples of these items include loans, deposits, borrowings, goodwill,
core deposit and other intangible assets, other assets and liabilities
obtained or assumed in business combinations, capitalized servicing
assets, pension and other postretirement benefit obligations, estimated
residual values of property associated with leases, and certain
derivative and other financial instruments. These valuations require the
use of various assumptions, including, among others, discount rates,
rates of return on assets, repayment rates, cash flows, default rates,
costs of servicing and liquidation values. The use of different
assumptions could produce significantly different results, which couldhave material positive or negative effects on the Company's results of
operations, financial condition or disclosures of fair value
information. In addition to valuation, the Company must assess whether
there are any declines in value below the carrying value of assets
that require recognition of a loss in the consolidated statement of
income. Examples include certain investments, capitalized servicing
assets, goodwill and core deposit and other intangible assets, among
others. Specific assumptions and estimates utilized by management arediscussed in detail herein in management's discussion and analysis of
financial condition and results of operations and in notes 1, 3, 4, 7,
8, 13, 19, 20 and 21 of Notes to Financial Statements.
• Commitments, contingencies and off-balance sheet arrangements -
Information regarding the Company's commitments and contingencies,
including guarantees and contingent liabilities arising from litigation,
and their potential effects on the Company's results of operations is
included in note 22 of Notes to Financial Statements. In addition, the
Company is routinely subject to examinations from various governmental
taxing authorities. Such examinations may result in challenges to the
tax return treatment applied by the Company to specific transactions.
Management believes that the assumptions and judgment used to record
tax-related assets or liabilities have been appropriate. Should tax lawschange or the tax authorities determine that management's assumptions
were inappropriate, the result and adjustments required could have a
material effect on the Company's results of operations. Information
regarding the Company's income taxes is presented in note 14 of Notes to
Financial Statements. The recognition or de-recognition in the Company's
consolidated financial statements of assets and liabilities held by
so-called variable interest entities is subject to the interpretation
and application of complex accounting pronouncements or interpretations
that require management to estimate and assess the relative significance
of the Company's financial interests in those entities and
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the degree to which the Company can influence the most important
activities of the entities. Information relating to the Company's
involvement in such entities and the accounting treatment afforded each
such involvement is included in note 20 of Notes to Financial
Statements.
Overview
Net income recorded by the Company in 2021 was$1.86 billion or$13.80 of diluted earnings per common share, representing an increase of 37% and 39%, respectively, from$1.35 billion or$9.94 of diluted earnings per common share in 2020. Basic earnings per common share also increased 39% to$13.81 in 2021 from$9.94 in 2020. In connection with M&T's pending acquisition of People's United, the after-tax impact of merger-related expenses was$34 million ($44 million pre-tax), or$.25 of basic and diluted earnings per common share in 2021. Merger-related expenses largely consisted of professional services related to planned integration efforts associated with the merger. There were no merger-related expenses during 2020 and 2019. Net income in 2019 totaled$1.93 billion , while diluted and basic earnings per common share were$13.75 and$13.76 , respectively. Expressed as a rate of return on average assets, net income in 2021 was 1.22%, compared with 1.00% in 2020 and 1.61% in 2019. The return on average common shareholders' equity was 11.54% in 2021, 8.72% in 2020 and 12.87% in 2019. Table 1 EARNINGS SUMMARY Dollars in millions Compound Increase (Decrease)(a) Growth Rate 2020 to 2021 2019 to 2020 5 Years Amount % Amount % 2021 2020 2019 2018 2017 2016 to 2021$ (256.5 ) (6 )$ (692.4 ) (14 ) Interest income(b)$ 3,953.5 $ 4,210.0 $ 4,902.4 $ 4,620.6 $ 4,202.4 - % (212.4 ) (65 ) (422.9 ) (56 ) Interest expense 114.0 326.4 749.3 526.4 386.8 (23 ) (44.1 ) (1 ) (269.5 ) (6 ) Net interest income(b) 3,839.5 3,883.6 4,153.1 4,094.2 3,815.6 2 (875.0 ) (109 ) 624.0 355 Less: provision for credit losses (75.0 ) 800.0 176.0 132.0 168.0 - (11.8 ) - (27.4 ) - Gain (loss) on bank investment securities (21.2 ) (9.4 ) 18.0 (6.3 ) 21.3 - 90.3 4 54.2 3 Other income 2,188.2 2,097.9 2,043.7 1,862.3 1,829.9 4 Less: 95.0 5 49.9 3 Salaries and employee benefits 2,045.7 1,950.7 1,900.8 1,752.3 1,648.8 5 131.4 9 (133.4 ) (9 ) Other expense 1,565.9 1,434.5 1,567.9 1,535.8 1,491.5 2 683.0 38 (783.2 ) (30 ) Income before income taxes 2,469.9 1,786.9 2,570.1 2,530.1 2,358.5 3 Less: (2.6 ) (15 ) (5.6 ) (24 ) Taxable-equivalent adjustment(b) 14.7 17.3 22.9
21.9 34.6 (11 ) 180.0 43 (201.7 ) (33 ) Income taxes 596.4 416.4 618.1 590.1 915.6 (4 )$ 505.6 37$ (575.9 ) (30 ) Net income$ 1,858.8 $ 1,353.2 $ 1,929.1 $ 1,918.1 $ 1,408.3 7 %
(a) Changes were calculated from unrounded amounts.
(b) Interest income data are on a taxable-equivalent basis. The
taxable-equivalent adjustment represents additional income taxes that would
be due if all interest income were subject to income taxes. This adjustment,
which is related to interest received on qualified municipal securities,
industrial revenue financings and preferred equity securities, is based on a
composite income tax rate of approximately 26% in 2018-2021 and 39% in prior
years.
Financial results for 2021 and 2020 were adversely impacted by the COVID-19
pandemic. Large portions of the
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adverse economic impacts, coupled with an accounting change noted herein,
resulted in the Company recognizing significantly higher provisions for credit
losses during 2020 as compared with previous years. An improvement in economic
conditions during 2021 led the Company to recapture provision for credit losses
of $75 million in 2021 compared with provisions for credit losses of $800
million in 2020 and $176 million in 2019. The 2020 and 2021 periods reflect the
amended accounting guidance for the measurement of expected credit losses on
financial instruments. Prior to 2020, the provision for credit losses reflected
incurred losses only. In response to the pandemic, the Federal Reserve took
actions to lower interest rates that have negatively affected the Company's net
interest income since the beginning of the pandemic. Taxable-equivalent net
interest income totaled $3.84 billion , $3.88 billion and $4.15 billion in 2021,
2020 and 2019, respectively.
Economic forecasts improved in 2021 resulting in a recapture of provision for
credit losses in 2021 compared with significant provision for credit losses
recorded in the prior year. During 2020, economic forecasts utilized during each
interim period resulted in higher estimates of expected credit losses in the
Company's loan portfolio than at January 1, 2020 , resulting in higher levels of
the provision for credit losses in each of those quarters as compared with the
comparable 2019 periods. Specifically, the level of the provision in 2020
reflected the ongoing impacts of the pandemic on economic activity in the
hospitality and retail sectors, the uncertainty at December 31, 2020 as to the
sufficiency and effectiveness of economic stimulus provided by the U.S.
government to the economy, and concerns about ultimate collectability of real
estate loans where the borrowers requested re-payment forbearance. Concerns
remain about large sectors of the economy, including the hotel, healthcare and
office space sectors. The allowance for credit losses for commercial real estate
loans remains elevated as a result. The Company expects that it will likely
continue to be impacted by the COVID-19 pandemic after December 31, 2021 .
Specifically, the Company expects that the following balance sheet and income
statement categories could be affected:
• Net interest income and net interest margin - the low interest rate
environment will continue to negatively affect the Company's net interest margin
until the level of general interest rates rises;
• Provision for credit losses - although the economy has experienced a recovery
in 2021, it is possible that economic assumptions used to calculate the
allowance for credit losses at the end of future reporting periods could
deteriorate, resulting in higher levels of the provision and allowance for
credit losses. In addition, the impact on borrowers' ability to repay loans
could be negatively affected, potentially leading to increased charge-offs;
• A resurgence of the pandemic or emergence of COVID-19 variants in large parts
of the country may impact customer demand for many of the Company's products and
services, in particular credit and deposit-related products and services.
Effective January 1, 2020 , M&T adopted amended accounting guidance for the
measurement of credit losses on financial instruments. That guidance required an
allowance for credit losses to be deducted from the amortized cost basis of
financial assets to present the net carrying value that is expected to be
collected over the contractual term of the assets considering relevant
information about past events, current conditions, and reasonable and
supportable forecasts that affect the collectability of the reported amount. The
accounting guidance replaced the previous incurred loss model for determining
the allowance for credit losses. The adoption of the amended guidance resulted
in a $132 million increase in the allowance for credit losses as of January 1,
2020 . Additional information on the amended accounting guidance is provided
under the heading "Provision for Credit Losses" and in note 5 of Notes to
Financial Statements.
There were several notable matters during 2019 that impacted that year's
results. In the first quarter of 2019, the Company recognized an expense of $50
million (reflected in "other costs of operations") to increase its reserve for
legal matters associated with a subsidiary's role as trustee of Employee Stock
Ownership Plans in its Institutional Client Services business. That expense, on
an after-tax basis, reduced net income by $37 million , or $.27 of diluted
earnings per common share. In
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July 2019 , M&T agreed to sell its non-controlling interest in an asset manager
obtained in the 2011 acquisition of Wilmington Trust Corporation that had been
accounted for using the equity method of accounting and, as a result, as of June
30, 2019 recorded a $48 million charge (reflected in "other costs of
operations") to reduce the carrying value of the investment to its estimated net
realizable value. Similar to other active investment managers, the investee
entity had experienced a decrease in assets under management and during the
second quarter of 2019 the entity's chief executive and investment officer
announced his retirement. Following that announcement, successor management
submitted a proposal to M&T to restructure the organization of the entity. The
after-tax impact of the charge was a reduction in net income of $36 million , or
$.27 of diluted earnings per common share. The sale of M&T's interest in the
asset manager was effective September 30, 2019 .
Reflecting the matters discussed previously, taxable-equivalent net interest
income was $3.84 billion in 2021, compared with $3.88 billion in 2020. That
decline resulted from a 40 basis point (hundredths of one percent) narrowing of
the net interest margin, or taxable-equivalent net interest income expressed as
an annualized percentage of average earning assets, to 2.76% in 2021 from 3.16%
in 2020, partially offset by the impact of an increase in average earning assets
to $139.1 billion in 2021 from $122.9 billion in 2020. The increase in average
earning assets resulted from higher amounts of low-yielding balances maintained
by the Company at the Federal Reserve Bank ("FRB") of New York .
Taxable-equivalent net interest income decreased 6% in 2020 from $4.15 billion
in 2019. That decrease resulted from a 68 basis point narrowing of the net
interest margin from 3.84% in 2019, partially offset by the impact of an
increase in average earning assets from $108.2 billion in 2019 that reflected
higher balances of loans and amounts held at the FRB of New York .
The provision for credit losses declined significantly in 2021 resulting in a
recapture of previously recorded provisions of $75 million , compared with
a provision for credit losses of $800 million recorded in 2020. The provision in
2019 was $176 million . Net charge-offs in 2021, 2020 and 2019 were $192 million ,
$247 million and $144 million , respectively.
Other income totaled $2.17 billion in 2021, $2.09 billion in 2020 and $2.06
billion in 2019. As compared with 2020, higher amounts of trust income, service
charges on deposit accounts, and brokerage services income in 2021 were
partially offset by lower trading account and foreign exchange gains, a higher
loss on bank investment securities and less in distributions from Bayview
Lending Group LLC ("BLG"). Comparing 2020 with 2019, a 24% rise in mortgage
banking revenues, higher trust income and increased income from BLG were
partially offset by a declines in service charges on deposit accounts, trading
account and foreign exchange gains and loan syndication fees.
Other expense totaled $3.61 billion in 2021, compared with $3.39 billion in 2020
and $3.47 billion in 2019. Included in those amounts are expenses considered by
M&T to be "nonoperating" in nature, consisting of amortization of core deposit
and other intangible assets of $10 million , $15 million and $19 million in 2021,
2020 and 2019, respectively, and merger-related expenses of $44 million in 2021.
No merger-related expenses were recorded in 2020 and 2019. Exclusive of those
nonoperating expenses, noninterest operating expenses totaled $3.56 billion in
2021, compared with $3.37 billion in 2020 and $3.45 billion in 2019. The higher
level of such expenses in 2021 as compared with 2020 was due to increased costs
for salaries and employee benefits, outside data processing and software, FDIC
assessments, and professional services. Contributing to the lower level of
noninterest operating expenses in 2020 as compared with 2019 were decreased
costs for professional services, legal-related matters, advertising and
marketing, travel and entertainment, and a $48 million charge in the second
quarter of 2019 associated with the sale of an equity investment in an asset
manager. Those factors were partially offset by higher costs for salaries and
employee benefits, outside data processing and software, increases to the
valuation allowance for capitalized residential mortgage servicing rights and
$14 million of expenses related to the planned transition of
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the support for the Company's retail brokerage and advisory business to the
platform of LPL Financial.
The efficiency ratio measures the relationship of noninterest operating expenses
to revenues. The Company's efficiency ratio, or noninterest operating expenses
(as previously defined) divided by the sum of taxable-equivalent net interest
income and noninterest income (exclusive of gains and losses from bank
investment securities), was 59.0% in 2021, compared with 56.3% and 55.7% in 2020
and 2019, respectively. The calculations of the efficiency ratio are presented
in table 2.
The Company's effective tax rate was 24.3% in 2021 and 2019, compared with 23.5%
in 2020.
Supplemental Reporting of Non-GAAP Results of Operations
As a result of business combinations and other acquisitions, the Company had
intangible assets consisting of goodwill and core deposit and other intangible
assets totaling $4.6 billion at each of December 31, 2021 and 2020, consisting
predominantly of goodwill. Amortization of core deposit and other intangible
assets, after-tax effect, totaled $8 million , $11 million and $14 million during
2021, 2020 and 2019, respectively.
M&T consistently provides supplemental reporting of its results on a "net
operating" or "tangible" basis, from which M&T excludes the after-tax effect of
amortization of core deposit and other intangible assets (and the related
goodwill, core deposit intangible and other intangible asset balances, net of
applicable deferred tax amounts) and gains (when realized) and expenses (when
incurred) associated with merging acquired or to be acquired operations with and
into the Company, since such items are considered by management to be
"nonoperating" in nature. In 2021, those merger-related expenses generally
consisted of professional services, reflecting legal expenses and
technology-related efforts to prepare for the integration of People's United's
systems with those of the Company, and printing costs associated with the
production of the joint proxy statement/prospectus distributed to the
shareholders of M&T and People's United. Such expenses totaled $44 million ($34
million after-tax) in 2021. There were no merger-related gains or expenses in
2020 and 2019. Although "net operating income" as defined by M&T is not a GAAP
measure, M&T's management believes that this information helps investors
understand the effect of acquisition activity in reported results.
Net operating income was $1.90 billion in 2021, $1.36 million in 2020, and $1.94
billion in 2019. Diluted net operating earnings per common share were $14.11 in
2021, $10.02 in 2020 and $13.86 in 2019.
Net operating income expressed as a rate of return on average tangible assets
was 1.28% in 2021, compared with 1.04% in 2020 and 1.69% in 2019. Net operating
income represented a return on average tangible common equity of 16.80% in 2021,
compared with 12.79% in 2020 and 19.08% in 2019.
Reconciliations of GAAP amounts with corresponding non-GAAP amounts are
presented in table 2.
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Table 2
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
2021 2020 2019
Income statement data
Dollars in thousands, except per share
Net income
Net income $ 1,858,746 $ 1,353,152 $ 1,929,149
Amortization of core deposit and other intangible assets(a) 7,532 10,993 14,359
Merger-related expenses(a) 33,560 - -
Net operating income $ 1,899,838 $ 1,364,145 $ 1,943,508
Earnings per common share
Diluted earnings per common share $ 13.80 $ 9.94 $ 13.75
Amortization of core deposit and other intangible assets(a) .06 .08 .11
Merger-related expenses(a) .25 - -
Diluted net operating earnings per common share $ 14.11 $ 10.02 $ 13.86
Other expense
Other expense $ 3,611,623 $ 3,385,240 $ 3,468,682
Amortization of core deposit and other intangible assets (10,167 ) (14,869 ) (19,490 )
Merger-related expenses (43,860 ) - -
Noninterest operating expense $ 3,557,596 $ 3,370,371 $ 3,449,192
Merger-related expenses
Salaries and employee benefits $ 176 $ - $ -
Equipment and net occupancy 341 - -
Outside data processing and software 1,119 - -
Advertising and marketing 866 - -
Printing, postage and supplies 2,965 - -
Other costs of operations 38,393 - -
Other expense $ 43,860 $ - $ -
Efficiency ratio
Noninterest operating expense (numerator) $ 3,557,596 $ 3,370,371 $ 3,449,192
Taxable-equivalent net interest income $ 3,839,509 $ 3,883,605 $ 4,153,127
Other income 2,166,994 2,088,444 2,061,679
Less: Gain (loss) on bank investment securities (21,220 ) (9,421 ) 18,037
Denominator $ 6,027,723 $ 5,981,470 $ 6,196,769
Efficiency ratio 59.0 % 56.3 % 55.7 %
Balance sheet data
In millions
Average assets
Average assets $ 152,669 $ 135,480 $ 119,584
Goodwill (4,593 ) (4,593 ) (4,593 )
Core deposit and other intangible assets (8 ) (21 ) (38 )
Deferred taxes 2 5 10
Average tangible assets $ 148,070 $ 130,871 $ 114,963
Average common equity
Average total equity $ 16,909 $ 15,991 $ 15,718
Preferred stock (1,438 ) (1,250 ) (1,272 )
Average common equity 15,471 14,741 14,446
Goodwill (4,593 ) (4,593 ) (4,593 )
Core deposit and other intangible assets (8 ) (21 ) (38 )
Deferred taxes 2 5 10
Average tangible common equity $ 10,872 $ 10,132 $ 9,825
At end of year
Total assets
Total assets $ 155,107 $ 142,601 $ 119,873
Goodwill (4,593 ) (4,593 ) (4,593 )
Core deposit and other intangible assets (4 ) (14 ) (29 )
Deferred taxes 1 4 7
Total tangible assets $ 150,511 $ 137,998 $ 115,258
Total common equity
Total equity $ 17,903 $ 16,187 $ 15,717
Preferred stock (1,750 ) (1,250 ) (1,250 )
Common equity 16,153 14,937 14,467
Goodwill (4,593 ) (4,593 ) (4,593 )
Core deposit and other intangible assets (4 ) (14 ) (29 )
Deferred taxes 1 4 7
Total tangible common equity $ 11,557 (a) After any related tax effect.
67-------------------------------------------------------------------------------- Net Interest Income/Lending and Funding Activities Taxable-equivalent net interest income was$3.84 billion in 2021, compared with$3.88 billion in 2020. The decrease in 2021 was primarily attributable to a 40 basis point narrowing of the net interest margin to 2.76% in 2021 from 3.16% in 2020 reflecting lower yields on loans offset, in part, by lower rates paid on deposits, and reduced balances of investment securities. Those net impacts were partially offset by increased deposits held at the FRB ofNew York that serve to increase net interest income, but, due to their low yield, reduce the reported net interest margin. Average earnings assets were$139.1 billion and$122.9 billion in 2021 and 2020, respectively. Average loans and leases were$96.6 billion in both 2021 and 2020. Average balances of commercial loans and leases decreased$2.3 billion or 8% to$25.2 billion in 2021 from$27.5 billion in 2020. That decrease was largely the result of a decline in average balances of PPP loans due to loan forgiveness by the SBA, lower dealer floor plan balances reflecting automobile production and inventory issues experienced by the industry and subdued loan demand by commercial customers, in general. PPP loans averaged$4.1 billion in 2021 compared with$4.4 billion in 2020. Average commercial real estate loan balances were up$336 million or 1% to$37.3 billion in 2021 from$37.0 billion in 2020. Consumer loans averaged$17.3 billion in 2021, an increase of$1.4 billion or 9% from$15.9 billion in 2020, due to growth in recreational finance loans (consisting predominantly of loans secured by recreational vehicles and boats) and, to a lesser extent, automobile loans that was partially offset by declines in average outstanding balances of home equity loans and lines of credit. Average residential real estate loans were$16.8 billion and$16.2 billion in 2021 and 2020, respectively, reflecting repurchases of government-guaranteed loans fromGinnie Mae pools that are serviced by the Company. The Company repurchases government-guaranteed loans to reduce associated servicing costs, namely a requirement to advance principal and interest payments that had not been received from individual mortgagors, including payments deferred under COVID-19 forbearance arrangements. The loans repurchased fromGinnie Mae pools averaged$3.3 billion in 2021, up from$2.6 billion in 2020. Additionally, late in the third quarter of 2021 the Company began to retain recently originated residential mortgage loans in portfolio rather than sell such loans. These increases were offset by the ongoing repayments of loans by customers. Net interest income expressed on a taxable-equivalent basis aggregated$3.88 billion in 2020, down 6% from$4.15 billion in 2019. That decline primarily resulted from a 68 basis point narrowing of the net interest margin, largely the result of declines in yields on loans and balances held at the FRB ofNew York , reflecting the lower interest rate environment due to actions initiated by theFederal Reserve to decrease its target Federal funds rate three times in the second half of 2019 (each by a .25% increment) and twice in March of 2020 (first by .50%, then another by 1.0%). The lower net interest margin was partially offset by the impact of a$14.6 billion , or 14%, increase in average earning assets to$122.9 billion in 2020 from$108.2 billion in 2019 that reflected increases in average loan and lease balances of$7.1 billion and in interest-bearing deposits at banks of$8.5 billion , partially offset by a decline in average balances of investment securities of$3.4 billion . Average loans and leases rose$7.1 billion , or 8%, in 2020 from$89.5 billion in 2019. Average balances of commercial loans and leases increased$4.2 billion or 18% to$27.5 billion in 2020 from$23.3 billion in 2019. That increase was the result of average outstanding PPP loans of$4.4 billion that were predominantly funded in the second quarter of 2020. Average commercial real estate loan balances were up$2.1 billion or 6% to$37.0 billion in 2020 from$34.9 billion in 2019. Consumer loans averaged$15.9 billion in 2020, up$1.2 billion or 9% from$14.6 billion in 2019, due to growth in recreational finance loans and automobile loans that was partially offset by declines in outstanding balances of home equity loans and lines of credit. Average residential real estate loans were$16.2 billion in 2020 and$16.7 billion in 2019, reflecting ongoing payments by customers, partially offset by repurchases of government-guaranteed loan fromGinnie Mae pools. These repurchased loans averaged$2.6 billion in 2020, up from$889 million in 2019. 68 -------------------------------------------------------------------------------- Table 3 AVERAGE BALANCE SHEETS AND TAXABLE-EQUIVALENT RATES 2021 2020 2019 2018 2017 Average Average Average Average Average Average Average Average Average Average Balance Interest Rate Balance Interest Rate Balance Interest Rate Balance Interest Rate Balance Interest Rate (Average balance in millions of dollars; interest in thousands of dollars) Assets Earning assets Loans and leases, net of unearned discount(a) Commercial, financial, etc.$ 25,191 $ 902,958 3.58 % 27,520 941,419 3.42 % 23,306 1,118,850 4.80 % 21,832 1,003,462 4.60 % 21,981 853,389 3.88 % Real estate - commercial 37,321 1,498,089 3.96 36,986 1,651,448 4.39 34,885 1,842,472 5.21 33,682 1,712,247 5.01 33,196 1,481,427 4.40 Real estate - consumer 16,770 595,496 3.55 16,215 618,597 3.82 16,665 708,555 4.25 18,330 766,552 4.18 21,013 832,574 3.96 Consumer 17,331 767,167 4.43 15,884 780,803 4.92 14,638 794,913 5.43 13,555 703,919 5.19 12,625 608,253 4.82 Total loans and leases, net 96,613 3,763,710 3.90 96,605 3,992,267 4.13 89,494 4,464,790 4.99 87,399 4,186,180 4.79 88,815 3,775,643 4.25 Interest-bearing deposits at banks 35,829 47,491 .13 15,329 32,956 .21 6,783 141,397 2.08 5,614 108,182 1.93 5,578 61,326 1.10
Federal funds sold and agreements to resell
securities 167 202 .12 2,717 6,985 .26 327 5,507 1.68 1 23 1.95 - 6 1.56 Trading account 50 942 1.89 53 1,111 2.10 68 1,842 2.72 58 1,479 2.55 71 1,202 1.70 Investment securities(b)U.S. Treasury and federal agencies 5,736 128,593 2.24 7,454 164,263 2.20 10,755 261,351 2.43 12,915 299,543 2.32 14,701 336,446 2.29
Obligations of states and political
subdivisions 1 30 5.87 3 125 4.98 7 298 4.48 16 747 4.58 43 1,951 4.62 Other 672 12,548 1.87 708 12,293 1.74 788 27,272 3.46 763 24,454 3.21 794 25,791 3.25 Total investment securities 6,409 141,171 2.20 8,165 176,681 2.16 11,550 288,921 2.50 13,694 324,744 2.37 15,538 364,188 2.34 Total earning assets 139,068 3,953,516 2.84 122,869 4,210,000 3.43 108,222 4,902,457 4.53 106,766 4,620,608 4.33 110,002 4,202,365 3.82 Allowance for credit losses (1,620 ) (1,503 ) (1,030 ) (1,019 ) (1,012 ) Cash and due from banks 1,446 1,327 1,294 1,312 1,295 Other assets 13,775 12,787 11,098 9,900 10,575 Total assets$ 152,669 135,480 119,584 116,959 120,860 Liabilities and Shareholders' Equity Interest-bearing liabilities Interest-bearing deposits Savings and interest-checking deposits$ 70,879 32,999 .05 63,590 146,700 .23 54,610 368,004 .67 52,102 215,411 .41 53,399 133,177 .25 Time deposits 3,263 18,635 .57 4,960 66,280 1.34 6,309 95,426 1.51 6,025 51,423 .85 8,161 61,505 .75 Deposits atCayman Islands office 181 201 .11 1,117 4,054 .36 1,367 21,917 1.60 394 5,633 1.43 185 1,186 .64 Total interest-bearing deposits 74,323 51,835 .07 69,667 217,034 .31 62,286 485,347 .78 58,521 272,467 .47 61,745 195,868 .32 Short-term borrowings 68 7 .01 62 28 .05 1,059 24,741 2.34 331 5,386 1.63 205 1,511 .74 Long-term borrowings 3,537 62,165 1.76 5,803 109,333 1.88 7,703 239,242 3.11 8,845 248,556 2.81 8,302 189,372 2.28 Total interest-bearing liabilities 77,928 114,007 .14 75,532 326,395 .43 71,048 749,330 1.05 67,697 526,409 .78 70,252 386,751 .55 Noninterest-bearing deposits 55,666 41,683 30,763 31,893 32,520 Other liabilities 2,166 2,274 2,055 1,739 1,793 Total liabilities 135,760 119,489 103,866 101,329 104,565 Shareholders' equity 16,909 15,991 15,718 15,630 16,295 Total liabilities and shareholders' equity$ 152,669 135,480 119,584 116,959 120,860 Net interest spread 2.70 3.00 3.48 3.55 3.27 Contribution of interest-free funds .06 .16 .36 .28 .20 Net interest income/margin on earning assets$ 3,839,509 2.76 % 3,883,605 3.16 % 4,153,127 3.84 % 4,094,199 3.83 % 3,815,614 3.47 %
(a) Includes nonaccrual loans.
(b) Includes available-for-sale investment securities at amortized cost.
69
--------------------------------------------------------------------------------Table 4 summarizes average loans and leases outstanding in 2021 and percentage changes in the major components of the portfolio over the past two years.
Table 4
AVERAGE LOANS AND LEASES
(Net of unearned discount)
Percent Increase
(Decrease) from
2021 2020 to 2021 2019 to 2020
(In millions)
Commercial, financial, etc. $ 25,191 (8 ) % 18 %
Real estate - commercial 37,321 1 6
Real estate - consumer 16,770 3 (3 )
Consumer
Recreational finance 7,680 21 31
Automobile 4,449 14 4
Home equity lines and loans 3,725 (12 ) (9 )
Other 1,477 5 2
Total consumer 17,331 9 9
Total $ 96,613 - % 8 %
Commercial loans and leases, excluding loans secured by real estate, totaled
$23.5 billion at December 31, 2021 , representing 25% of total loans and leases.
Table 5 presents information on commercial loans and leases as of December 31,
2021 relating to geographic area, size, borrower industry and whether the loans
are secured by collateral or unsecured. Of the $23.5 billion of commercial loans
and leases outstanding at the end of 2021, approximately $19.9 billion , or 85%,
were secured, while 35%, 17% and 28% were granted to businesses in New York
State , Pennsylvania and in the Mid-Atlantic area (which includes Delaware ,
Maryland , New Jersey , Virginia , West Virginia and the District of Columbia ),
respectively. The Company provides financing for leases to commercial customers,
primarily for equipment. Commercial leases included in total commercial loans
and leases at December 31, 2021 aggregated $1.0 billion , of which 48% were
secured by collateral located in New York State , 14% were secured by collateral
in Pennsylvania and another 20% were secured by collateral in the Mid-Atlantic
area.
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Table 5
COMMERCIAL LOANS AND LEASES, NET OF UNEARNED DISCOUNT
(Excludes Loans Secured by Real Estate)
December 31, 2021
Mid- Percent of
New York Pennsylvania Atlantic(a) Other Total Total
(Dollars in millions)
Services $ 1,390 $ 674 $ 1,363 $ 524 $ 3,951 17 %
Manufacturing 1,284 711 788 627 3,410 14 %
Motor vehicle and
recreational
finance dealers 859 507 422 1,233 3,021 13 %
Financial and insurance 1,197 257 627 913 2,994 13 %
Wholesale 642 546 631 418 2,237 9 %
Retail 384 254 533 329 1,500 6 %
Construction 478 351 580 84 1,493 6 %
Real estate investors 736 172 488 56 1,452 6 %
Transportation,
communications,
utilities 343 227 443 335 1,348 6 %
Health services 582 183 501 60 1,326 6 %
Public administration 91 38 22 14 165 1 %
Agriculture, forestry,
fishing, etc. 28 56 33 10 127 1 %
Other 141 144 71 93 449 2 %
Total $ 8,155 $ 4,120 $ 6,502 $ 4,696 $ 23,473 100 %
Percent of total 35 % 17 % 28 % 20 % 100 %
Percent of dollars
outstanding
Secured 73 % 83 % 81 % 91 % 81 %
Unsecured 21 14 16 5 15
Leases 6 3 3 4 4
Total 100 % 100 % 100 % 100 % 100 %
Percent of dollars
outstanding by
size of loan
Less than $1 million 26 % 21 % 25 % 12 % 22 %
$1 million to $5 million 25 24 21 20 23
$5 million to $10 million 12 17 11 15 14
$10 million to $20 million 11 16 12 16 12
$20 million to $30 million 7 11 8 11 9
$30 million to $50 million 7 6 9 11 8
Greater than $50 million 12 5 14 15 12
Total 100 % 100 % 100 % 100 % 100 %
(a) Includes Delaware,
International loans included in commercial loans and leases totaled$116 million and$100 million atDecember 31, 2021 and 2020, respectively. Included in such amounts at each of those dates were$94 million of loans atM&T Bank's commercial banking office inOntario, Canada . The remaining international loans were predominantly to domestic companies with foreign operations. 71 -------------------------------------------------------------------------------- Loans secured by real estate, including outstanding balances of home equity loans and lines of credit which the Company classifies as consumer loans, represented approximately 59% of the loan and lease portfolio during each of 2021 and 2020, compared with 63% in 2019. AtDecember 31, 2021 , the Company held approximately$35.4 billion of commercial real estate loans (including$425 million held for sale),$16.1 billion of consumer real estate loans secured by one-to-four family residential properties (including$474 million of loans held for sale) and$3.6 billion of outstanding balances of home equity loans and lines of credit, compared with$37.6 billion ,$16.8 billion and$4.0 billion , respectively, atDecember 31, 2020 . Included in commercial real estate loans atDecember 31, 2021 and 2020 were construction loans of$9.3 billion and$10.0 billion , respectively, including amounts due from builders and developers of residential real estate aggregating$1.4 billion and$1.3 billion atDecember 31, 2021 and 2020, respectively. Commercial real estate loans included loans held for sale totaling$425 million and$278 million atDecember 31, 2021 and 2020, respectively. International loans included in commercial real estate loans totaled$74 million atDecember 31, 2021 and$60 million atDecember 31, 2020 . Commercial real estate loans originated by the Company include both fixed and variable rate instruments with monthly payments and a balloon payment of the remaining unpaid principal at maturity. Maturity dates generally range from five to ten years and, for borrowers in good standing, the terms of such loans may be extended by the customer following maturity at the then-current market rate of interest. Adjustable-rate commercial real estate loans represented approximately 69% of the commercial real estate loan portfolio at the 2021 year-end. Table 6 presents commercial real estate loans by geographic area, type of collateral and size of the loans outstanding atDecember 31, 2021 .New York City area commercial real estate loans totaled$8.2 billion atDecember 31, 2021 . The$7.1 billion of investor-owned commercial real estate loans in theNew York City area were largely secured by multifamily residential properties, retail space and office space. The Company's experience has been that office, retail and service-related properties tend to demonstrate more volatile fluctuations in value through economic cycles and changing economic conditions than do multifamily residential properties. Approximately 67% of the aggregate dollar amount ofNew York City area loans were for loans with outstanding balances of$30 million or less, while loans of more than$50 million made up approximately 18% of the total. Commercial real estate loans secured by properties located in other parts ofNew York State ,Pennsylvania and the Mid-Atlantic area tend to have a greater diversity of collateral types and include a significant amount of lending to customers who use the mortgaged property in their trade or business (owner-occupied). Approximately 93% of the aggregate dollar amount of commercial real estate loans inNew York State secured by properties located outside of theNew York City area were for loans with outstanding balances of$30 million or less. Of the outstanding balances of commercial real estate loans inPennsylvania and the Mid-Atlantic area, approximately 81% and 77%, respectively, were for loans with outstanding balances of$30 million or less. Commercial real estate loans secured by properties located outside ofPennsylvania , the Mid-Atlantic area andNew York State comprised 22% of total commercial real estate loans as ofDecember 31, 2021 . Commercial real estate construction and development loans made to investors presented in table 6 totaled$8.9 billion atDecember 31, 2021 , or 10% of total loans and leases. Approximately 82% of those construction loans had adjustable interest rates. Included in such loans at the 2021 year-end were$1.4 billion of loans to builders and developers of residential real estate properties. The remainder of the commercial real estate construction loan portfolio was comprised of loans made for various purposes, including the construction of office buildings, multifamily residential housing, retail space and other commercial development. 72 --------------------------------------------------------------------------------
Table 6
COMMERCIAL REAL ESTATE LOANS, NET OF UNEARNED DISCOUNT
December 31, 2021
New York State
New York Penn- Mid- Percent of
City Other sylvania Atlantic(a) Other Total Total
(Dollars in millions)
Investor-owned
Permanent finance by
property
type
Retail/Service $ 1,468 $ 632 $ 409 $ 906 $ 912 $ 4,327 12 %
Apartments/Multifamily 1,080 1,115 407 532 779 3,913 11
Office 889 896 481 1,023 567 3,856 11
Health facilities 512 472 434 638 638 2,694 8
Hotel 574 369 220 765 653 2,581 7
Industrial/Warehouse 213 217 265 426 306 1,427 4
Other 147 25 13 70 - 255 1
Total permanent 4,883 3,726 2,229 4,360 3,855 19,053 54 %
Construction/Development
Commercial Construction 1,929 460 539 2,001 2,011 6,940 20 % Land/Land development 154 25 12 164 151 506 1 Residential builder and developer Construction 116 18 55 179 588 956 3 Land/Land development 37 11 40 96 266 450 1 Total construction/ development 2,236 514 646 2,440 3,016 8,852 25 % Total investor-owned 7,119 4,240 2,875 6,800 6,871 27,905 79 % Owner-occupied by industry(b) Other services 248 393 212 568 84 1,505 4 % Motor vehicle and recreational finance dealers 191 233 339 331 360 1,454 4 Retail 175 172 282 415 205 1,249 3 Health services 106 280 64 170 10 630 2 Wholesale 98 73 143 243 127 684 2 Manufacturing 102 204 92 135 35 568 2 Real estate investors 57 88 78 216 38 477 1 Other 146 190 211 348 23 918 3 Total owner-occupied 1,123 1,633 1,421 2,426 882 7,485 21 % Total commercial real estate$ 8,242 $ 5,873 $ 4,296 $ 9,226 $ 7,753 $ 35,390 100 % Percent of total 23 % 17 % 12 % 26 % 22 % 100 % Percent of dollars outstanding by size of loan Less than$1 million 4 % 14 % 11 % 10 % 8 % 9 %$1 million to$5 million 15 25 21 18 11 17$5 million to$10 million 15 21 18 15 12 16$10 million to$30 million 33 33 31 34 34 33$30 million to$50 million 15 4 18 16 21 15$50 million to$100 million 15 - 1 4 7 6 Greater than$100 million 3 3 - 3 7 4 Total 100 % 100 % 100 % 100 % 100 % 100 %
(a) Includes Delaware,
(b) Includes
73
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M&T Realty Capital Corporation , a commercial real estate lending subsidiary of
M&T Bank , participates in the Delegated Underwriting and Servicing ("DUS")
program of Fannie Mae, pursuant to which commercial real estate loans are
originated in accordance with terms and conditions specified by Fannie Mae and
sold. Under this program, loans are sold with partial credit recourse to M&T
Realty Capital Corporation . The amount of recourse is generally limited to
one-third of any credit loss incurred by the purchaser on an individual loan,
although in some cases the recourse amount is less than one-third of the
outstanding principal balance. The Company's maximum credit risk for recourse
associated with sold commercial real estate loans was approximately $4.0 billion
at each of December 31, 2021 and 2020. There have been no material losses
incurred as a result of those recourse arrangements. At December 31, 2021 and
2020, commercial real estate loans serviced by the Company for other investors
were $23.7 billion and $22.2 billion , respectively. Reflected in commercial real
estate loans serviced for others were loans sub-serviced for others that had
outstanding balances of $3.5 billion and $3.3 billion at December 31, 2021 and
2020, respectively.
Real estate loans secured by one-to-four family residential properties were
$16.1 billion at December 31, 2021 , including approximately 36% secured by
properties located in New York State , 7% secured by properties located in
Pennsylvania , 17% secured by properties in New Jersey and 17% secured by
properties located in other Mid-Atlantic areas. Included in residential real
estate loans were loans repurchased by the Company from Ginnie Mae pools as
previously described. Those repurchased loans totaled $2.8 billion at December
31, 2021 and $2.7 billion at December 31, 2020 . The Company's portfolio of
limited documentation residential real estate loans held for investment totaled
$1.3 billion at December 31, 2021 , compared with $1.6 billion at December 31,
2020 . That portfolio consisted predominantly of limited documentation loans
acquired in a prior business combination. Such loans represent loans that at
origination typically included some form of limited borrower documentation
requirements as compared with more traditional residential real estate loans.
The acquired loans that were eligible for limited documentation processing were
available in amounts up to 65% of the lower of the appraised value or purchase
price of the property. Loans to individuals to finance the construction of
one-to-four family residential properties totaled $57 million at December 31,
2021 and $77 million at December 31, 2020 , or approximately .1% of total loans
and leases at each of those dates. Information about the credit performance of
the Company's residential real estate loans is included herein under the heading
"Provision For Credit Losses."
Consumer loans comprised approximately 19% of total loans and leases at
December 31, 2021 and 17% at December 31, 2020 . Outstanding balances of
recreational finance loans represented the largest component of the consumer
loan portfolio at December 31, 2021 and totaled $8.1 billion or approximately 9%
of total loans, up from $7.1 billion or 7% at December 31, 2020 . That growth
reflects continued consumer demand for such loans. Home equity loans and lines
of credit outstanding at December 31, 2021 and December 31, 2020 were $3.6
billion and $4.0 billion , respectively. Approximately 41% of home equity loans
and lines of credit outstanding at December 31, 2021 were secured by properties
in New York State , 22% in Maryland , 21% in Pennsylvania and 5% in New Jersey .
Outstanding automobile loan balances rose to $4.7 billion at December 31, 2021
from $4.1 billion at December 31, 2020 . That increase also reflects continued
consumer demand for motor vehicles despite recent supply chain disruptions.
Table 7 presents the composition of the Company's loan and lease portfolio at
the end of 2021, including outstanding balances to businesses and consumers in
New York State , Pennsylvania , the Mid-Atlantic area and other states.
74
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Table 7
LOANS AND LEASES, NET OF UNEARNED DISCOUNT
Percent of Dollars Outstanding
Mid-Atlantic
New Penn- New
Outstandings York sylvania Maryland Jersey Other(a) Other
(In millions)
Real estate
Residential $ 16,074 36 % 7 % 9 % 17 % 8 % 23 %
Commercial 35,390 40 12 10 7 9 22
Total real estate 51,464 39 % 10 % 10 % 10 % 8 % 23 %
Commercial, financial, etc. 22,471 34 % 18 % 13 % 7 % 8 % 20 %
Consumer
Recreational finance 8,053 10 % 6 % 3 % 4 % 5 % 72 %
Home equity lines and loans 3,563 41 21 22 5 9 2
Automobile 4,679 27 18 12 7 15 21
Other secured or guaranteed 677 27 8 9 3 19 34
Other unsecured 1,003 38 19 26 3 11 3
Total consumer 17,975 23 % 13 % 11 % 4 % 9 % 40 %
Total loans 91,910 34 % 13 % 11 % 8 % 9 % 25 %
Commercial leases 1,002 48 % 14 % 12 % 6 % 2 % 18 %
Total loans and leases $ 92,912 35 % 13 % 11 % 8 % 9 % 24 %
(a) Includes Delaware,
The investment securities portfolio averaged$6.4 billion in 2021, down from$8.2 billion and$11.6 billion in 2020 and 2019, respectively. The decline in average balances of investment securities in 2021 and 2020 was predominantly due to maturities and pay downs of mortgage-backed securities and maturities ofU.S. Treasury notes. During 2021 the Company purchased approximately$1.6 billion of fixed rate residential mortgage-backed securities and approximately$680 million ofU.S. Treasury notes. There were no significant purchases of investment securities during 2020. During 2019, the Company purchased$500 million ofU.S. Treasury notes. Sales of investment securities were not significant in 2021, 2020 or 2019. The Company routinely has increases and decreases in its holdings of capital stock of theFederal Home Loan Bank ("FHLB") ofNew York and the FRB ofNew York . Those holdings are accounted for at cost and are adjusted based on the amounts of outstanding borrowings and available lines of credit with those entities. The investment securities portfolio is largely comprised of residential mortgage-backed securities and shorter-termU.S. Treasury and federal agency notes. When purchasing investment securities, the Company considers its liquidity position and its overall interest-rate risk profile as well as the adequacy of expected returns relative to risks assumed, including prepayments. The Company may occasionally sell investment securities as a result of changes in interest rates and spreads, actual or anticipated prepayments, credit risk associated with a particular security, or as a result of restructuring its investment securities portfolio in connection with a business combination. The amounts of investment securities held by the Company are influenced by such factors as available yield in comparison with alternative investments, demand for loans, which generally yield more than 75 -------------------------------------------------------------------------------- investment securities, ongoing repayments, the levels of deposits, and management of liquidity and balance sheet size and resulting capital ratios. Fair value changes in equity securities with readily determinable fair values are recognized in the consolidated statement of income. Net unrealized losses on such equity securities were$21 million in 2021 and$9 million in 2020, compared with net unrealized gains of$18 million in 2019. Those gains and losses were predominantly related to the Company's holdings of Fannie Mae and Freddie Mac preferred stock. The Company regularly reviews its debt investment securities for declines in value below amortized cost that might be indicative of credit-related losses. In light of such reviews, there were no credit-related losses on debt investment securities recognized in 2021, 2020 or 2019. Based on management's assessment of future cash flows associated with individual investment securities as ofDecember 31, 2021 , the Company did not expect to incur any material credit-related losses in its portfolios of debt investment securities. A further discussion of fair values of investment securities is included herein under the heading "Capital." Additional information about the investment securities portfolio is included in notes 3 and 21 of Notes to Financial Statements. Other earning assets include interest-bearing balances at the FRB ofNew York and other banks, trading account assets, federal funds sold and agreements to resell securities. Those other earning assets in the aggregate averaged$36.0 billion in 2021,$18.1 billion in 2020 and$7.2 billion in 2019. Interest-bearing deposits at banks averaged$35.8 billion in 2021, compared with$15.3 billion in 2020 and$6.8 billion in 2019. The amounts of interest-bearing deposits at banks at the respective dates were predominantly comprised of deposits held at the FRB ofNew York . The levels of those deposits often fluctuate due to changes in trust-related deposits of commercial entities, purchases or maturities of investment securities, or borrowings to manage the Company's liquidity. The higher amount in 2021 as compared with 2020 and 2019 reflects increased commercial and consumer deposit balances. Agreements to resell securities averaged$167 million ,$2.7 billion ,$327 million in 2021, 2020 and 2019, respectively. The higher average balance in 2020 reflects the temporary investment by the Company of increased customer deposit levels. Table 8 AVERAGE CORE DEPOSITS Percent Increase (Decrease) from 2020 to 2019 to 2021 2021 2020 (In millions) Savings and interest-checking deposits$ 67,048 12 % 15 % Time deposits 2,861 (33 ) (18 ) Noninterest-bearing deposits 55,666 34 35 Total$ 125,575 19 % 20 % The most significant source of funding for the Company is core deposits. The Company considers noninterest-bearing deposits, interest-bearing transaction accounts, savings deposits and time deposits of$250,000 or less as core deposits. The Company's branch network is its principal source of core deposits, which generally carry lower interest rates than wholesale funds of comparable maturities. Average core deposits were$125.6 billion in 2021, compared with$105.7 billion in 2020 and$87.9 billion in 2019. Average balances of savings and interest-checking core deposits rose$7.3 billion or 12% in 2021 to$67.0 billion from$59.8 billion in 2020. Average noninterest-bearing deposits increased$14.0 billion or 34% to$55.7 billion in 2021 from$41.7 billion in 2020. A continuance of the trend observed in 2020, those increases were largely due to 76 -------------------------------------------------------------------------------- higher average deposits of commercial and consumer customers. Average core deposits in 2020 were up 20% as compared with 2019. Average savings and interest-checking core deposit balances rose$7.9 billion or 15% in 2020 from$51.9 billion in 2019. Average noninterest-bearing deposits in 2020 increased$10.9 billion or 35% from$30.8 million in 2019. Funding provided by core deposits represented 90% of average earning assets in 2021, compared with 86% in 2020 and 81% in 2019. Table 8 summarizes average core deposits in 2021 and percentage changes in the components of such deposits over the past two years. Core deposits totaled$128.0 billion and$114.2 billion atDecember 31, 2021 and 2020, respectively. Table 9 AVERAGE DEPOSITS Commercial Retail Trust and Other Total (In millions) 2021
Savings and interest-checking deposits
3,062 25 176 3,263
Noninterest-bearing deposits 8,379 10,529 36,758 55,666
Deposits at Cayman Islands office - - 181 181
Total $ 45,405 $ 16,575 $ 68,009 $ 129,989
2020
Savings and interest-checking deposits
4,657 50 253 4,960
Noninterest-bearing deposits 6,572 5,406 29,705 41,683
Deposits at Cayman Islands office - - 1,117 1,117
Total $ 40,301 $ 11,087 $ 59,962 $ 111,350
2019
Savings and interest-checking deposits
5,739 46 524 6,309
Noninterest-bearing deposits 5,352 4,219 21,192 30,763
Deposits at Cayman Islands office - - 1,367 1,367
Total $ 37,905 $ 10,718 $ 44,426 $ 93,049
The Company also receives funding from other deposit sources, including
branch-related time deposits over $250,000 , brokered deposits and, prior to June
30, 2021 , deposits associated with the Company's Cayman Islands office. Time
deposits over $250,000 averaged $402 million in 2021, $683 million in 2020 and
$956 million in 2019. The decline in such deposits from 2019 through 2021 was
predominantly the result of maturities of time deposits and, due to the low
interest rate environment, a reduced demand from customers for time deposit
products. Cayman Islands office deposits averaged $181 million in 2021, $1.1
billion in 2020 and $1.4 billion in 2019. Those deposits consisted predominantly
of balances swept from lower-yielding commercial customer accounts. During the
second quarter of 2021, the Company introduced a new interest-bearing sweep
product (included in savings and interest-bearing deposits) that replaced the
Eurodollar sweep product previously recorded as Cayman Islands office deposits.
As a result, there were no outstanding deposits at the Cayman Islands office as
of December 31, 2021 and the office is closed. The Company had brokered savings
and interest-bearing transaction accounts that averaged $3.8 billion in each of
2021 and 2020, compared with $2.7 billion in 2019. Brokered time deposits were
not a
77
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significant source of funding in any of the three years discussed herein.
Additional brokered deposits may be added in the future depending on market
conditions, including demand by customers and other investors for those
deposits, and the cost of funds available from alternative sources at the time.
Time deposits over $250,000 were $345 million and $454 million at December 31,
2021 and 2020, respectively. Total uninsured deposits were estimated to be $69.1
billion at December 31, 2021 .
The Company also uses borrowings from banks, the FHLB of New York , the FRB of
New York and others as sources of funding. Short-term borrowings represent
arrangements that at the time they were entered into had a contractual maturity
of one year or less. Average short-term borrowings were $68 million in 2021, $62
million in 2020 and $1.1 billion in 2019.
Long-term borrowings averaged $3.5 billion in 2021, $5.8 billion in 2020 and
$7.7 billion in 2019. Average balances of outstanding senior notes were $2.4
billion in 2021, compared with $3.8 billion and $5.3 billion in 2020 and 2019,
respectively. Unsecured senior notes totaled $2.4 billion and $2.8 billion at
December 31, 2021 and 2020, respectively. In January 2021 , $350 million of
variable rate senior notes of M&T Bank matured. During 2020, M&T Bank redeemed
$2.1 billion of fixed rate senior notes that were within thirty days of
scheduled maturity and, thereby, eligible for redemption. Also included in
average long-term borrowings were amounts borrowed from FHLBs of $2 million in
2021 and 2020, compared with $241 million in 2019 and subordinated capital notes
of $581 million in 2021, compared with $1.4 billion in each of 2020 and 2019. In
March 2021 , M&T Bank redeemed $500 million of subordinated capital notes that
were due to mature on December 1, 2021 and during December 2020 , $409 million of
subordinated capital notes of M&T Bank matured. Junior subordinated debentures
associated with trust preferred securities that were included in average
long-term borrowings were $530 million in 2021, $527 million in 2020 and $524
million in 2019. Additional information regarding long-term borrowings,
including information regarding contractual maturities of such borrowings, is
provided in note 9 of Notes to Financial Statements.
The Company has utilized interest rate swap agreements to modify the repricing
characteristics of certain components of its loans and long-term debt. As of
December 31, 2021 , interest rate swap agreements were used as fair value hedges
of approximately $1.65 billion of outstanding fixed rate long-term borrowings.
Additionally, interest rate swap agreements with a notional amount of $13.35
billion were used as cash flow hedges of interest payments associated with
variable rate commercial real estate loans. Further information on interest rate
swap agreements is provided herein and in note 19 of Notes to Financial
Statements.
Changes in the composition of the Company's earning assets and interest-bearing
liabilities, as discussed herein, as well as changes in interest rates and
spreads, can impact net interest income. Net interest spread, or the difference
between the taxable-equivalent yield on earning assets and the rate paid on
interest-bearing liabilities, was 2.70% in 2021, compared with 3.00% in 2020 and
3.48% in 2019. The yield on the Company's earning assets decreased 59 basis
points to 2.84% in 2021 from 3.43% in 2020 and the rate paid on interest-bearing
liabilities decreased 29 basis points to .14% in 2021 from .43% in 2020. During
2019, the yield on earning assets was 4.53% and the rate paid on
interest-bearing liabilities was 1.05%. The lower net interest spreads in 2021
and 2020 as compared with 2019 also reflect the effect of decreases in
short-term interest rates initiated by the Federal Reserve and the impact of a
higher proportion of low-yielding balances at the FRB of New York to total
average earning assets. While those low-yielding balances add to net interest
income, they have the effect of reducing the yield on total average earning
assets and, as a result, the net interest spread.
Net interest-free funds consist largely of noninterest-bearing demand deposits
and shareholders' equity, partially offset by bank owned life insurance and
non-earning assets, including goodwill and core deposit and other intangible
assets. Net interest-free funds averaged $61.1 billion in 2021, $47.3 billion in
2020 and $37.2 billion in 2019. The increase in net interest-free funds in 2021
and in 2020 reflects higher average balances of noninterest-bearing deposits.
Those deposits averaged $55.7 billion in 2021, $41.7 billion in 2020 and $30.8
billion in 2019. The increase in such balances since
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2019 was largely due to higher levels of deposits of commercial customers.
Shareholders' equity averaged $16.9 billion , $16.0 billion and $15.7 billion in
2021, 2020 and 2019, respectively. Goodwill and core deposit and other
intangible assets averaged $4.6 billion in each of 2021, 2020 and 2019. The cash
surrender value of bank owned life insurance averaged $1.86 billion in 2021,
$1.84 billion in 2020 and $1.81 billion in 2019. Increases in the cash surrender
value of bank owned life insurance are not included in interest income, but
rather are recorded in "other revenues from operations." The contribution of net
interest-free funds to net interest margin was .06% in 2021, .16% in 2020 and
.36% in 2019. The reduced contribution of net interest-free funds to net
interest margin in 2021 and 2020 reflects the lower rates on interest-bearing
liabilities used to value net interest-free funds.
Reflecting the changes to the net interest spread and the contribution of net
interest-free funds as described herein, the Company's net interest margin was
2.76% in 2021, 3.16% in 2020 and 3.84% in 2019. Future changes in market
interest rates or spreads, as well as changes in the composition of the
Company's portfolios of earning assets and interest-bearing liabilities that
result in reductions in spreads, could adversely impact the Company's net
interest income and net interest margin.
Management assesses the potential impact of future changes in interest rates and
spreads by projecting net interest income under several interest rate scenarios.
In managing interest rate risk, the Company has utilized interest rate swap
agreements to modify the repricing characteristics of certain portions of its
earning assets and interest-bearing liabilities. Periodic settlement amounts
arising from these agreements are reflected in either the yields on earning
assets or the rates paid on interest-bearing liabilities. The notional amount of
interest rate swap agreements entered into for interest rate risk management
purposes was $15.0 billion (excluding $8.4 billion of forward-starting swap
agreements) at December 31, 2021 , $19.0 billion (excluding $32.1 billion of
forward-starting swap agreements) at December 31, 2020 and $17.2 billion
(excluding $40.4 billion of forward-starting swap agreements) at December 31,
2019 . Under the terms of those interest rate swap agreements, the Company
received payments based on the outstanding notional amount at fixed rates and
made payments at variable rates. At December 31, 2021 , interest rate swap
agreements with notional amounts of $13.35 billion were serving as cash flow
hedges of interest payments associated with variable rate commercial real estate
loans, compared with $17.35 billion at December 31, 2020 and $13.35 billion at
December 31, 2019 . Interest rate swap agreements with notional amounts of $1.65
billion at each of December 31, 2021 and 2020, and $3.80 billion at December 31,
2019 were serving as fair value hedges of fixed rate long-term borrowings. The
Company has entered into the forward-starting interest rate swap agreements
predominantly to extend the term of its interest rate swap agreements serving as
cash flow hedges, and provide a hedge against changing interest rates on certain
of its variable rate loans.
In a fair value hedge, the fair value of the derivative (the interest rate swap
agreement) and changes in the fair value of the hedged item are recorded in the
Company's consolidated balance sheet with the corresponding gain or loss
recognized in current earnings. The difference between changes in the fair value
of the interest rate swap agreements and the hedged items represents hedge
ineffectiveness and is recorded as an adjustment to the interest income or
interest expense of the respective hedged item. The amounts of hedge
ineffectiveness recognized in 2021, 2020 and 2019 were not material to the
Company's consolidated results of operations. In a cash flow hedge, the
derivative's gain or loss is initially reported as a component of other
comprehensive income and subsequently reclassified into earnings when the
forecasted transaction affects earnings. Information regarding cash flow hedges
is presented in note 16 of Notes to Financial Statements. Information regarding
the fair value of interest rate swap agreements and hedge ineffectiveness is
presented in note 19 of Notes to Financial Statements. The changes in the fair
values of the interest rate swap agreements and the hedged items primarily
result from the effects of changing interest rates and
79
--------------------------------------------------------------------------------spreads. The average notional amounts of interest rate swap agreements entered into for interest rate risk management purposes, the related effect on net interest income and margin, and the weighted-average interest rates paid or received on those swap agreements are presented in table 10.
Table 10
INTEREST RATE SWAP AGREEMENTS
Year Ended December 31
. 2021 2020 2019
Amount Rate(a) Amount Rate(a) Amount Rate(a)
(Dollars in thousands)
Increase (decrease) in:
Interest income $ 252,397 .18 % $ 271,971 .22 % $ 13,011 .01 %
Interest expense (34,810 ) (.03 ) (40,145 ) (.05 ) 15,136 .02
Net interest income/margin $ 287,207 .20 % $ 312,116 .25 % $ (2,125 ) - %
Average notional amount (c) $ 18,282,192 $ 16,985,246 $ 16,248,356
Rate received (b) 1.75 % 2.51 % 2.40 %
Rate paid (b) .18 % .67 % 2.42 %
(a) Computed as a percentage of average earning assets or interest-bearing
liabilities.
(b) Weighted-average rate paid or received on interest rate swap agreements in
effect during the year.
(c) Excludes forward-starting interest rate swap agreements not in effect during
the year.
Provision for Credit Losses
As described in note 5 of Notes to Financial Statements, effective January 1,
2020 the Company adopted amended accounting guidance for the measurement of
credit losses on financial instruments. That guidance requires an allowance for
credit losses to be deducted from the amortized cost basis of financial assets
to present the net carrying value that is expected to be collected over the
contractual term of the assets considering relevant information about past
events, current conditions, and reasonable and supportable forecasts that affect
the collectability of the reported amount. The guidance replaced the previous
incurred loss model for determining the allowance for credit losses. The
adoption of the amended guidance resulted in a $132 million increase in the
allowance for credit losses at January 1, 2020 . Increases in the allowance for
residential real estate loans and consumer loans, reflecting the longer-dated
maturities of such portfolios, were offset somewhat by net decreases in the
allowance for commercial loans resulting from lower loss estimates on demand
loan products due to the assumption that the Company could require full
repayment of such loans in the near-term. Table 11 depicts the changes in the
allowance for credit losses by loan category resulting from the adoption of the
amended guidance.
80
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Table 11
IMPACT OF ADOPTION OF AMENDED ACCOUNTING GUIDANCE ON
ALLOWANCE FOR CREDIT LOSSES
Impact of
Balance Adoption
December 31, Increase Balance
2019 (Decrease) January 1, 2020
(In thousands)
Commercial, financial, leasing, etc.
$ 304,620 Commercial real estate 322,201 23,656 345,857 Residential real estate 56,033 53,896 109,929 Consumer 229,118 194,004 423,122 Unallocated 77,625 (77,625 ) - Total$ 1,051,071 $ 132,457 $ 1,183,528 The amended guidance requires estimated credit losses on loans acquired at a discount to be reflected in the allowance for credit losses. Previously, such losses were netted in the carrying value of the loans unless there was an increased loss expectation subsequent to their acquisition. The gross-up of the estimated losses on loans acquired at a discount that was previously not recognized in the allowance for credit losses was$18 million onJanuary 1, 2020 . Prior toJanuary 1, 2020 , the Company generally recognized interest income on loans acquired at a discount regardless of the borrowers' repayment status. Effective with the adoption of the accounting guidance, the Company's nonaccrual loan policy applied to loans acquired at a discount. Loans acquired at a discount atDecember 31, 2019 included$171 million of loans that, effective with the adoption of the guidance, were classified as non-accrual loans onJanuary 1, 2020 . A provision for credit losses is recorded to adjust the level of the allowance to reflect expected credit losses that are based on economic forecasts as of each reporting date. A provision for credit loss recapture of$75 million was recorded in 2021, compared with provisions for credit losses of$800 million in 2020 and$176 million in 2019. As noted earlier, the recapture in 2021 and the significant increase in the provision in 2020 as compared with 2019 follows the adoption of accounting guidance onJanuary 1, 2020 and reflects economic assumptions and projections that considered the macroeconomic outlook associated with the COVID-19 pandemic and subsequent recovery. The Company's estimates of expected losses reflect the ongoing impacts of the pandemic on economic activity, generally, and concerns about commercial real estate values and the ultimate collectability of real estate loans for which borrowers had previously received forbearance as a result of the pandemic. Net charge-offs of loans were$192 million in 2021,$247 million in 2020 and$144 million in 2019. Net charge-offs as a percentage of average loans and leases outstanding were .20% in 2021, compared with .26% in 2020 and .16% in 2019. A summary of the Company's loan charge-offs, provision and allowance for credit losses is presented in table 12 and in note 5 of Notes to Financial Statements. 81 --------------------------------------------------------------------------------
Table 12
LOAN CHARGE-OFFS, PROVISION AND ALLOWANCE FOR CREDIT LOSSES
2021 2020 2019 2018 2017
(Dollars in thousands)
Allowance for credit losses beginning
balance $ 1,736,387 $ 1,051,071 $ 1,019,444 $ 1,017,198 $ 988,997
Adoption of new accounting standard - 132,457 - - -
Charge-offs during year
Commercial, financial,
leasing, etc. 122,651 135,083 58,244 60,414 64,941
Commercial real estate 101,306 35,891 12,664 12,286 7,931
Residential real estate 10,904 10,283 12,711 15,345 20,799
Consumer 103,293 152,250 154,089 143,196 130,927
Total charge-offs 338,154 333,507 237,708 231,241 224,598
Recoveries during year
Commercial, financial,
leasing, etc. 41,082 15,765 24,581 27,903 21,196
Commercial real estate 30,651 4,550 3,936 21,037 12,582
Residential real estate 8,857 7,116 8,204 6,664 8,983
Consumer 65,403 58,935 56,614 45,883 42,038
Total recoveries 145,993 86,366 93,335 101,487 84,799
Net charge-offs 192,161 247,141 144,373 129,754 139,799
Provision for credit losses (75,000 ) 800,000 176,000 132,000 168,000
Allowance for credit losses ending
balance $ 1,469,226 $ 1,736,387 $ 1,051,071 $ 1,019,444 $ 1,017,198
Net charge-offs as a percent of:
Provision for credit losses NM(a) 30.89 % 82.03 % 98.30 % 83.21 %
Average loans and leases, net of
unearned discount .20 % .26 % .16 % .15 % .16 %
Allowance for credit losses as a percent
of:
Loans and leases, net of unearned
discount, at year-end 1.58 % 1.76 % 1.16 % 1.15 % 1.16 % Nonaccrual loans, at year-end 71.32 % 91.71 % 109.13 % 114.08 % 115.25 % (a) Not meaningful Nonaccrual loans aggregated$2.06 billion atDecember 31, 2021 , compared with$1.89 billion and$963 million atDecember 31, 2020 and 2019, respectively. As a percentage of total loans and leases outstanding, nonaccrual loans represented 2.22% atDecember 31, 2021 , compared with 1.92% and 1.06% atDecember 31, 2020 and 2019, respectively. The higher level of nonaccrual loans atDecember 31, 2021 as compared withDecember 31, 2020 reflects the continuing impact of the pandemic on borrowers' ability to make contractual payments on their loans, most notably loans in the hospitality sector. The higher level atDecember 31, 2020 as compared withDecember 31, 2019 reflects the addition in 2020 of$530 million of loans associated with hotels as well as other additions that, in general, resulted from the economic conditions in 2020. A summary of nonperforming assets and certain past due, renegotiated and impaired loan data and credit quality ratios is presented in table 13. 82 --------------------------------------------------------------------------------
Table 13
NONPERFORMING ASSET AND PAST DUE, RENEGOTIATED AND IMPAIRED LOAN DATA
December 31 2021 2020 2019 2018 2017
(Dollars in thousands)
Nonaccrual loans $ 2,060,083 1,893,299 963,112 893,608 882,598
Real estate and other foreclosed assets 23,901 34,668 85,646 78,375 111,910
Total nonperforming assets $ 2,083,984 1,927,967 1,048,758 971,983 994,508
Accruing loans past due 90 days or
more(a) $ 963,399 859,208 518,728 222,527 244,405
Government guaranteed loans included in
totals
above:
Nonaccrual loans$ 51,429 48,820 50,891 34,667 35,677 Accruing loans past due 90 days or more(a) 927,788 798,121 479,829 192,443 235,489 Renegotiated loans$ 230,408 238,994 234,424 245,367 221,513 Acquired accruing loans past due 90 days or more(b) N/A N/A 39,632 39,750 47,418 Purchased impaired loans(c): Outstanding customer balance N/A N/A 415,413 529,520 688,091 Carrying amount N/A N/A 227,545 303,305 410,015 Nonaccrual loans to total loans and leases, net of unearned discount 2.22 % 1.92 % 1.06 % 1.01 % 1.00 % Nonperforming assets to total net loans and leases and real estate and other foreclosed assets 2.24 % 1.96 % 1.15 % 1.10 % 1.13 % Accruing loans past due 90 days or more(a) to total loans and leases, net of unearned discount 1.04 % .87 % .57 % .25 % .28 %
(a) Predominantly residential real estate loans. Prior to 2020, excludes loans
acquired at a discount.
(b) Prior to 2020, loans acquired at a discount that were recorded at fair value
at acquisition date. This category does not include purchased impaired loans
that are presented separately.
(c) Prior to 2020, accruing loans acquired at a discount that were impaired at
acquisition date and recorded at fair value.
Accruing loans past due 90 days or more were$963 million or 1.04% of total loans and leases atDecember 31, 2021 and$859 million or .87% atDecember 31, 2020 . Accruing loans past due 90 days or more (excluding loans acquired at a discount) were$519 million or .57% atDecember 31, 2019 . Accruing loans past due 90 days or more included loans guaranteed by government-related entities of$928 million ,$798 million and$480 million atDecember 31, 2021 , 2020 and 2019, respectively. Guaranteed loans included one-to-four family residential mortgage loans serviced by the Company that were repurchased to reduce associated servicing costs, including a requirement to advance principal and interest payments that had not been received from individual mortgagors. Despite the loans being purchased by the Company, the insurance or guarantee by the applicable government-related entity remains in force. The outstanding principal balances of the repurchased loans included in the amounts noted above that are guaranteed by government-related entities totaled$889 million atDecember 31, 2021 ,$764 million atDecember 31, 2020 and$452 million atDecember 31, 2019 . The increase in such loans as compared withDecember 31, 2019 reflects loans repurchased during 2021 and 2020. The remaining accruing loans past due 90 days or more not guaranteed by government-related entities were loans considered to be with creditworthy borrowers 83 -------------------------------------------------------------------------------- that were in the process of collection or renewal. In addition to the past due loans, the Company also has$974 million of government-guaranteed residential mortgage loans as ofDecember 31, 2021 that are not considered delinquent because the borrower has requested and received a COVID-19 related payment deferral. In general, those loans were also repurchased to reduce associated servicing costs as described above and also remain covered by the insurance or guarantee of the applicable government-related entity, but are not considered to be past due in accordance with the accounting treatment afforded under the CARES Act and related regulatory and financial accounting guidance as described below and in note 1 of Notes to Financial Statements. Loans that were 30-89 days past due were$846 million atDecember 31, 2021 , compared with$662 million atDecember 31, 2020 and$1.2 billion atDecember 31, 2019 . Loans that are still subject to a COVID-19 related payment deferral are classified as current in accordance with regulatory guidance and, as a result, did not contribute to incremental additions to loans categorized as 30-89 days past due. COVID-19 related modified loans that exit the deferral period and subsequently fail to make contractual payments in accordance with the modified terms are reported in the applicable delinquency classification perM&T Bank's credit policy. Information about delinquent loans atDecember 31, 2021 and 2020 is included in note 4 of Notes to Financial Statements. Prior to the adoption of the new accounting standard onJanuary 1, 2020 , the Company reported purchased impaired loans. Those loans were impaired at the date of acquisition, were recorded at estimated fair value and were generally delinquent in payments, but, in accordance with GAAP, the Company continued to accrue interest income on such loans based on the estimated expected cash flows associated with the loans. The amended accounting guidance requires estimated credit losses on loans acquired at a discount to now be reflected in the allowance for credit losses and effective with the adoption of the guidance, the Company's nonaccrual loan policy applies to such loans. The carrying amount of purchased impaired loans was$228 million atDecember 31, 2019 . The direct and indirect effects of the COVID-19 pandemic resulted in a dramatic reduction in 2020 in economic activity that severely hampered the ability of some businesses and consumers to meet their repayment obligations. The CARES Act, in addition to providing financial assistance to both businesses and consumers, created a forbearance program for federally-backed mortgage loans, protected borrowers from negative credit reporting due to loan accommodations related to the pandemic, and provided financial institutions the option to temporarily suspend certain requirements under GAAP related to troubled debt restructurings for a limited period of time to account for the effects of COVID-19. The banking regulatory agencies likewise issued guidance encouraging financial institutions to work prudently with borrowers who are, or may be, unable to meet their contractual payment obligations because of the effects of COVID-19. That guidance, with concurrence of theFinancial Accounting Standards Board and provisions of the CARES Act, allowed modifications made on a good faith basis in response to COVID-19 to borrowers who were generally current with their payments prior to any relief, to not be treated as delinquent or as troubled debt restructurings. Modifications included payment deferrals (including extensions of maturity dates), covenant waivers and fee waivers. The Company worked with its customers affected by COVID-19 and granted modifications across many of its loan portfolios. To the extent that such modifications met the criteria previously described, such modifications have not been classified as delinquent or as troubled debt restructurings. A summary of loans for which COVID-19 forbearances are still in effect and which are not considered past due is included in note 4 of Notes to the Financial Statements. The Company also modified the terms of select loans in an effort to assist borrowers that were not related to the COVID-19 pandemic. If the borrower was experiencing financial difficulty and a concession was granted, the Company considered such modifications as troubled debt restructurings. Loan modifications included such actions as the extension of loan maturity dates and the lowering of 84 -------------------------------------------------------------------------------- interest rates and monthly payments. The objective of the modifications was to increase loan repayments by customers and thereby reduce net charge-offs. Information about modifications of loans that are considered troubled debt restructurings is included in note 4 of Notes to Financial Statements. Residential real estate loans modified under specified loss mitigation programs prescribed by government guarantors that were not related to the COVID-19 pandemic have not been included in renegotiated loans because the loan guarantee remains in full force and, accordingly, the Company has not granted a concession with respect to the ultimate collection of the original loan balance. Such loans totaled$425 million and$342 million atDecember 31, 2021 andDecember 31, 2020 , respectively. Charge-offs of commercial loans and leases, net of recoveries, aggregated$82 million in 2021,$119 million in 2020 and$34 million in 2019. As a percentage of average commercial loans, those net charge-offs were .32%, .43%, and .14% in 2021, 2020 and 2019, respectively. Commercial loans and leases in nonaccrual status were$221 million atDecember 31, 2021 ,$307 million atDecember 31, 2020 and$347 million atDecember 31, 2019 . Net charge-offs of commercial real estate loans totaled$71 million during 2021, compared with$31 million during 2020 and$9 million in 2019 or .19% in 2021, .08% in 2020 and .03% in 2019 of average commercial real estate loans. The higher levels of net charge-offs in 2021 and 2020 of commercial loans and commercial real estate loans reflect the impact of the pandemic on borrowers' abilities to repay loans. In the commercial real estate portfolio, those charged-off loans were mostly associated with the retail, office building and hospitality sectors. Commercial real estate loans classified as nonaccrual were$1.2 billion atDecember 31, 2021 ,$891 million atDecember 31, 2020 and$195 million atDecember 31, 2019 . Nonaccrual commercial real estate loans included construction-related loans of$114 million ,$115 million and$37 million at the end of 2021, 2020 and 2019, respectively. The increase in commercial real estate loans in nonaccrual status sinceDecember 31, 2019 was largely reflective of loans in the hospitality sector. Hotel-related commercial real estate loans (including construction) in nonaccrual status atDecember 31, 2021 and 2020 were$696 million and$607 million , respectively. Net charge-offs of residential real estate loans were$2 million in 2021,$3 million in 2020 and$5 million in 2019 representing .01% of average residential real estate loans in 2021, compared with .02% in 2020 and .03% in 2019. Residential real estate loans in nonaccrual status atDecember 31, 2021 were$479 million , compared with$513 million and$319 million atDecember 31, 2020 and 2019, respectively. Nonaccrual limited documentation first mortgage loans aggregated$123 million atDecember 31, 2021 , compared with$147 million and$83 million atDecember 31, 2020 and 2019, respectively. Limited documentation first mortgage loans represent loans secured by residential real estate that at origination typically included some form of limited borrower documentation requirements as compared with more traditional loans. The Company no longer originates limited documentation loans. Residential real estate loans past due 90 days or more and accruing interest (excluding loans acquired at a discount prior to 2020) totaled$920 million atDecember 31, 2021 ,$793 million atDecember 31, 2020 and$487 million atDecember 31, 2019 . A substantial portion of such amounts related to guaranteed loans repurchased from government-related entities, including the previously noted higher level of repurchases of loans associated with the Company's loan servicing portfolio. However, loans that have been granted forbearances related to COVID-19 that are still in effect are not considered to be past due in accordance with the previously noted regulatory guidance and provisions of the CARES Act. Information about the location of nonaccrual and charged-off residential real estate loans as of and for the year endedDecember 31, 2021 is presented in table 14. 85 -------------------------------------------------------------------------------- Table 14 SELECTED RESIDENTIAL REAL ESTATE-RELATED LOAN DATA Year Ended December 31, 2021 December 31, 2021 Nonaccrual Net Charge-offs (Recoveries) Percent of Percent of Average Outstanding Outstanding Outstanding Balances Balances Balances Balances Balances (Dollars in thousands) Residential mortgages: New York$ 5,198,808 $ 136,280 2.62 %$ 1,312 .03 % Pennsylvania 1,036,187 13,670 1.32 465 .04 Maryland 1,434,464 15,996 1.12 600 .04 New Jersey 2,279,024 91,744 4.03 (60 ) - Other Mid-Atlantic (a) 1,202,368 21,645 1.80 (19 ) - Other 3,602,456 76,149 2.11 583 .02 Total$ 14,753,307 $ 355,484 2.41 %$ 2,881 .02 % Residential construction loans: New York$ 19,292 $ 146 .76 % $ - - % Pennsylvania 5,727 228 3.98 - - Maryland 7,466 - - - - New Jersey 10,017 - - - - Other Mid-Atlantic (a) 11,019 - - - - Other 3,543 - - - - Total$ 57,064 $ 374 .66 % $ - - % Limited documentation first mortgages: New York$ 579,421 $ 54,636 9.43 %$ 53 .01 % Pennsylvania 23,098 3,471 15.03 21 .07 Maryland 13,880 1,970 14.19 (27 ) (.16 ) New Jersey 467,010 37,523 8.03 - - Other Mid-Atlantic (a) 11,681 1,393 11.93 (2 ) (.02 ) Other 168,984 23,895 14.14 (879 ) (.45 ) Total$ 1,264,074 $ 122,888 9.72 %$ (834 ) (.06 %) First lien home equity loans and lines of credit: New York$ 910,565 $ 16,600 1.82 %$ 372 .04 % Pennsylvania 550,228 9,372 1.70 428 .07 Maryland 447,690 9,358 2.09 305 .07 New Jersey 64,951 621 .96 (11 ) (.02 ) Other Mid-Atlantic (a) 160,577 2,610 1.63 25 .01 Other 23,459 1,228 5.23 41 .15 Total$ 2,157,470 $ 39,789 1.84 %$ 1,160 .05 % Junior lien home equity loans and lines of credit: New York$ 553,611 $ 13,676 2.47 %$ (595 ) (.10 %) Pennsylvania 189,189 2,616 1.38 (599 ) (.30 ) Maryland 350,891 9,388 2.68 (1,222 ) (.32 ) New Jersey 95,785 1,105 1.15 (1,485 ) (1.59 ) Other Mid-Atlantic (a) 173,894 3,271 1.88 59 .03 Other 39,047 459 1.18 (416 ) (1.04 ) Total$ 1,402,417 $ 30,515 2.18 %$ (4,258 ) (.29 %) Limited documentation junior lien: New York$ 372 $ 21 5.65 %$ (7 ) (1.85 %) Pennsylvania 149 24 16.11 10 6.08 Maryland 515 25 4.85 (1 ) (.16 ) New Jersey 115 - - - - Other Mid-Atlantic (a) 248 32 12.90 - - Other 1,305 82 6.28 (182 ) (9.56 ) Total$ 2,704 $ 184 6.80 %$ (180 ) (4.95 %)
(a) Includes Delaware,
86
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Net charge-offs of consumer loans aggregated $38 million in 2021, compared with
$93 million in 2020 and $97 million in 2019. As a percentage of average consumer
loans those net charge-offs were .22% in 2021, .59% in 2020 and .67% in 2019.
Included in net charge-offs of consumer loans were: net recoveries of automobile
loans of $2 million in 2021, compared with net charge-offs of $22 million in
2020 and $24 million in 2019; recreational finance loan net charge-offs of $13
million , $27 million and $26 million during 2021, 2020 and 2019, respectively;
and net recoveries of home equity loans and lines of credit secured by
one-to-four family residential properties of $3 million in 2021, compared with
net charge-offs of $3 million in 2020 and $6 million in 2019. The reduced level
of net charge-offs of consumer loans in 2021 reflects the improving economy, in
general, and the level of prices associated with motor vehicles, recreational
vehicles and residential real estate. Nonaccrual consumer loans were $177
million at December 31, 2021 , compared with $183 million and $102 million at
December 31, 2020 and 2019, respectively. Included in nonaccrual consumer loans
at the 2021, 2020 and 2019 year-ends were: automobile loans of $34 million , $39
million and $21 million , respectively; recreational finance loans of $28
million , $26 million and $14 million , respectively; and outstanding balances of
home equity loans and lines of credit of $70 million , $79 million and $63
million , respectively. Information about the location of nonaccrual and
charged-off home equity loans and lines of credit as of and for the year ended
December 31, 2021 is presented in table 14. Information about past due and
nonaccrual loans as of December 31, 2021 and 2020 is also included in note 5 of
Notes to Financial Statements.
Real estate and other foreclosed assets totaled $24 million at December 31,
2021 , compared with $35 million at December 31, 2020 and $86 million at
December 31, 2019 . The decline in 2020 and 2021 is largely reflective of
foreclosure moratoriums imposed by government authorities in numerous
jurisdictions. Net gains or losses associated with real estate and other
foreclosed assets were not material in 2021, 2020 or 2019. At December 31, 2021 ,
foreclosed assets are comprised entirely of the Company's holding of residential
real estate-related properties.
Beginning in 2020, management determined the allowance for credit losses under
amended accounting guidance that requires estimating the amount of current
expected credit losses over the remaining contractual term of the loan and lease
portfolio. Prior to 2020, the allowance for credit losses represented the amount
that in management's judgment reflected incurred credit losses inherent in the
loan and lease portfolio as of the balance sheet date. A description of the
methodologies used by the Company to estimate its allowance for credit losses
can be found in note 5 of Notes to Financial Statements.
In establishing the allowance for credit losses subsequent to December 31, 2019 ,
the Company estimates losses attributable to specific troubled credits
identified through both normal and targeted credit review processes and also
estimates losses for other loans and leases with similar risk characteristics on
a collective basis. For purposes of determining the level of the allowance for
credit losses, the Company evaluates its loan and lease portfolio by type.
Despite recent improvements in macroeconomic forecasts, at the time of the
Company's analysis regarding the determination of the allowance for credit
losses as of December 31, 2021 , concerns persisted about the somewhat uneven and
incomplete recovery evident in the economy, the emergence of new COVID-19
variants (including the recent emerging variant commonly referred to as Omicron)
that may further disrupt a recovery, the ultimate effectiveness of economic
stimulus being provided by the U.S. government that has contributed to increased
deficit spending and raised inflation concerns; disruptions to supply chains and
the related impacts to businesses and consumers; the volatile nature of global
markets, including the impact international economic conditions could have on
the U.S. economy; Federal Reserve positioning of monetary policy; the extent to
which borrowers, in particular commercial real estate borrowers may continue to
be negatively affected by pandemic-related and general economic conditions; and
continued stagnant population and economic growth in the upstate New York and
central Pennsylvania regions (approximately 48% of the Company's loans and
leases are to customers in New York State and Pennsylvania ) that could see
lingering effects of the economic
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downturn. The Company utilizes a loan grading system to differentiate risk
amongst its commercial loans and commercial real estate loans. Loans with a
lower expectation of default are assigned one of ten possible "pass" loan grades
while specific loans determined to have an elevated level of credit risk are
classified as "criticized." A criticized loan may be classified as "nonaccrual"
if the Company no longer expects to collect all amounts according to the
contractual terms of the loan agreement or the loan is delinquent 90 days or
more. During 2021 and 2020, the Company re-graded significant portions of its
commercial loans and commercial real estate loans based on financial results and
projections of specific borrowers, particularly those that were affected by
COVID-19 impacts. Criticized commercial loans and commercial real estate loans
totaled $9.0 billion at December 31, 2021 , compared with $7.2 billion at
December 31, 2020 and $2.5 billion at December 31, 2019 . The rise in criticized
loans reflects the impact of the pandemic on borrowers' financial condition and
the re-grading of loans by the Company, and is reflective of the provision for
expected credit losses recorded by the Company in 2020 as the pandemic unfolded.
The increases in such loans since December 31, 2020 were largely attributable to
investor-owned permanent commercial real estate loans in the hotel, office and
healthcare sectors and commercial real estate construction loans in the hotel
and healthcare sectors. On the overall basis, weighted-average
loan-to-stabilized value ("LTV") ratios for investor-owned commercial real
estate properties do not vary significantly by asset class or sector, and at
December 31, 2021 were generally within the range of 55% to 65% with an overall
weighted-average LTV ratio of approximately 57%. Investor-owned commercial real
estate loans comprised $7.0 billion , or 78% of total criticized loans of $9.0
billion at December 31, 2021 .
The COVID-19 pandemic and related governmental responses led to a significant
reduction in economic activity that was detrimental to many borrowers across the
Company's geographic regions, particularly commercial borrowers in the hotel,
health care-related and office sectors and residential mortgage borrowers. Many
of these borrowers have been and could likely continue to be adversely impacted
by the economic effects of the COVID-19 pandemic. COVID-19 related modifications
with payment deferrals at December 31, 2021 totaled $1.2 billion and consisted
predominantly of residential real estate loans, including $974 million of
government-guaranteed loans. Substantially all of those deferrals are scheduled
to expire during 2022 and/or are in the process of formal modification of
repayment terms for previously deferred payments.
As commercial loans and commercial real estate loans were approved for
modifications related to COVID-19, the Company assessed loans considering the
credit worthiness of the borrower, collateral values, the financial condition of
any guarantors, and the expected collectability of contractual principal and
interest payments. Loan-to-collateral values on investor-owned loans are
generally relatively low and oftentimes the loans include some form of recourse.
Loans secured by residential real estate with a COVID-19 payment forbearance
were evaluated for collectability based on the borrower's ability to repay
considering past performance and estimated collateral values. If collectability
was considered doubtful, loans were classified as nonaccrual.
Loan officers in different geographic locations with the support of the
Company's credit department personnel review and reassign loan grades based on
their detailed knowledge of individual borrowers and their judgment of the
impact on such borrowers resulting from changing conditions in their respective
regions. The Company re-assessed its loan grades for those borrowers most
impacted by COVID-19. The Company's policy is that, at least annually, updated
financial information is obtained from commercial borrowers associated with pass
grade loans and additional analysis performed. On a quarterly basis, the
Company's centralized credit department reviews all criticized commercial loans
and commercial real estate loans greater than $1 million to determine the
appropriateness of the assigned loan grade, including whether the loan should be
reported as accruing or nonaccruing. For criticized nonaccrual loans, additional
meetings are held with loan officers and their managers, workout specialists and
senior management to discuss each of the relationships. In analyzing criticized
loans, borrower-specific information is reviewed, including operating results,
future cash flows, recent developments and the borrower's outlook, and other
pertinent data. The
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timing and extent of potential losses, considering collateral valuation and
other factors, and the Company's potential courses of action are contemplated.
With regard to residential real estate loans, the Company's loss identification
and estimation techniques make reference to loan performance and house price
data in specific areas of the country where collateral securing the Company's
residential real estate loans is located. For residential real estate-related
loans, including home equity loans and lines of credit, the excess of the loan
balance over the net realizable value of the property collateralizing the loan
is charged-off when the loan becomes 150 days delinquent. That charge-off is
based on recent indications of value from external parties that are generally
obtained shortly after a loan becomes nonaccrual. Loans to consumers that file
for bankruptcy are generally charged off to estimated net collateral value
shortly after the Company is notified of such filings. At December 31, 2021 ,
approximately 61% of the Company's home equity portfolio consisted of first lien
loans and lines of credit. Of the remaining junior lien loans in the portfolio,
approximately 56% (or approximately 22% of the aggregate home equity portfolio)
consisted of junior lien loans that were behind a first lien mortgage loan that
was not owned or serviced by the Company. To the extent known by the Company, if
a senior lien loan would be on nonaccrual status because of payment delinquency,
even if such senior lien loan was not owned by the Company, the junior lien loan
or line that is owned by the Company is placed on nonaccrual status. In
monitoring the credit quality of its home equity portfolio for purposes of
determining the allowance for credit losses, the Company reviews delinquency and
nonaccrual information and considers recent charge-off experience. When
evaluating individual home equity loans and lines of credit for charge off and
for purposes of determining the allowance for credit losses, the Company
considers the required repayment of any first lien positions related to
collateral property. Home equity line of credit terms vary but such lines are
generally originated with an open draw period of ten years followed by an
amortization period of up to twenty years. At December 31, 2021 , approximately
85% of all outstanding balances of home equity lines of credit related to lines
that were still in the draw period, the weighted-average remaining draw periods
were approximately five years, and approximately 10% were making contractually
allowed payments that do not include any repayment of principal.
Factors that influence the Company's credit loss experience include overall
economic conditions affecting businesses and consumers, generally, but also
residential and commercial real estate valuations, in particular, given the size
of the Company's real estate loan portfolios. Commercial real estate valuations
can be highly subjective, as they are based upon many assumptions. Such
valuations can be significantly affected over relatively short periods of time
by changes in business climate, economic conditions, interest rates and, in many
cases, the results of operations of businesses and other occupants of the real
property. Similarly, residential real estate valuations can be impacted by
housing trends, the availability of financing at reasonable interest rates, and
general economic conditions affecting consumers.
The Company generally estimates current expected credit losses on loans with
similar risk characteristics on a collective basis. To estimate expected losses,
the Company utilizes statistically developed models to project principal
balances over the remaining contractual lives of the loan portfolios and
determine estimated credit losses through a reasonable and supportable forecast
period. The Company's approach for estimating current expected credit losses for
loans and leases has included utilizing macro-economic assumptions to project
losses over a two-year reasonable and supportable forecast period. Subsequent to
the forecast period, the Company reverted to longer-term historical loss
experience, over a period of one year, to estimate expected credit losses over
the remaining contractual life. Forward-looking estimates of certain
macro-economic variables are determined by the M&T Scenario Development Group ,
which is comprised of senior management business leaders and economists. Among
the assumptions utilized as of December 31, 2021 was that the national
unemployment rate will average 4.6% through the first year of the reasonable and
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supportable forecast period before gradually improving to 3.7% in the latter
half of 2023. The forecast also assumed gross domestic product grows during 2022
at a 3.1% annual rate and during 2023 at a 2.7% average rate. Commercial real
estate and residential real estate prices were assumed to cumulatively grow
11.1% and 5.9%, respectively, over the two-year reasonable and supportable
forecast period. The assumptions utilized in estimating the allowance for credit
losses as of December 31, 2020 included an estimated unemployment rate averaging
6.9% through 2021 followed by a gradual return to long-term historical averages
by the end of 2022. Gross domestic product was assumed to grow at a 4.1% annual
rate during 2021 resulting in a return to pre-pandemic levels by the end of
2022. Commercial real estate prices were assumed to decline by approximately
6.8% in 2021, followed by improvement. Residential real estate prices were not
assumed to fluctuate significantly. In most instances the actual macroeconomic
conditions experienced in 2021 were favorable in comparison to the forecasts
made at December 31, 2020 . Such improvements contributed to the recapture of
provision for credit losses during 2021 of $75 million . The assumptions utilized
as of January 1, 2020 at the time of the adoption of the expected credit loss
accounting standard were significantly less severe. Those assumptions
anticipated unemployment rates that averaged under 4% and steady growth in gross
domestic product of 3.3% over the eight-quarter forecast period. Forecasted
changes in real estate prices as of that date were not significant. The
assumptions utilized were based on information available to the Company at or
near December 31, 2021 , December 31, 2020 and January 1, 2020 (at the time it
was preparing its estimate of expected credit losses as of those dates).
In establishing the allowance for credit losses the Company also considers the
impact of portfolio concentrations, changes in underwriting practices, product
expansions into new markets, imprecision in its economic forecasts, and other
risk factors that influence its loss estimation process. With respect to
economic forecasts, the Company assessed the likelihood of alternative economic
scenarios during the two-year reasonable and supportable time period. Economic
forecasts have changed rapidly in the recent past due to the uncertain impacts
of COVID-19. Generally, an increase in unemployment rate or a decrease in any of
the rate of change in gross domestic product, commercial real estate prices or
home prices would have an adverse impact on expected credit losses and would
likely result in an increase in the allowance for credit losses. Forward looking
economic forecasts are subject to inherent imprecision and future events may
differ materially from actual events. In consideration of such uncertainty, the
following alternative economic scenarios were considered to estimate the
possible impact on modeled credit losses.
•A potential downside economic scenario assumed the unemployment rate reaches
9.0% in 2022 before declining to 7.1% by the end of the reasonable and
supportable forecast period. The scenario also assumed gross domestic product
contracts 2.1% in 2022 before recovering to recently experienced levels by the
third quarter of 2023, commercial real estate prices cumulatively decline 12.4%
by the end of 2023, and residential real estate prices decline modestly in 2022
and remain flat during 2023.
•A potential upside economic scenario assumed the unemployment rate declines to
3.0% in 2022's fourth quarter where it stays for the remainder of the reasonable
and supportable forecast period. The scenario also assumes gross domestic
product grows 4.8% in 2022 and 1.5% in 2023, while commercial real estate and
residential real estate prices cumulatively rise 16.9% and 7.6%, respectively,
over the two-year reasonable and supportable forecast period.
The scenario analyses resulted in an additional $222 million of modeled credit
losses under the assumptions of the downside economic scenario, whereas under
the assumptions of the upside economic scenario a $56 million reduction in
modeled credit losses could occur. These examples are only a few of the numerous
possible economic scenarios that could be utilized in assessing the sensitivity
of expected credit losses. The estimated impacts on credit losses in such
scenarios pertain
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only to modeled credit losses and do not include consideration of other factors
the Company may evaluate when determining its allowance for credit losses.
As a result, it is possible that the Company may, at another point in time,
reach different conclusions regarding credit loss estimates. The Company's
process for determining the allowance for credit losses undergoes quarterly and
periodic evaluations by independent risk management personnel, which among many
other considerations, evaluate the reasonableness of management's methodology
and significant assumptions. Further information about the Company's methodology
to estimate expected credit losses is included in note 5 of Notes to Financial
Statements.
Prior to 2020, the allowance for credit losses represented the amount that in
management's judgment reflected incurred credit losses inherent in the loan and
lease portfolio as of the balance sheet date. The allowance was determined by
management's evaluation of the loan and lease portfolio based on such factors as
the differing economic risks associated with each loan category, the current
financial condition of specific borrowers, the current economic environment in
which borrowers operate, the level of delinquent loans, the value of any
collateral and, where applicable, the existence of any guarantees or
indemnifications. The estimation of the allowance for credit losses prior to
2020 did not consider reasonable and supportable forecasts that could have
affected the collectability of the reported amounts.
A comparative allocation of the allowance for credit losses for each of the past
five year-ends is presented in table 15. Amounts were allocated to specific loan
categories based on information available to management at the time of each
year-end assessment and using the methodologies described herein. Variations in
the allocation of the allowance by loan category as a percentage of those loans
reflect the impact of the new accounting rules effective January 1, 2020 as well
as changes in management's estimate of credit losses in light of economic
developments. Furthermore, the Company's allowance is general in nature and is
available to absorb losses from any loan or lease category. Additional
information about the allowance for credit losses is included in note 5 of Notes
to Financial Statements.
Table 15
ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES TO LOAN CATEGORIES
December 31 2021 2020 2019 2018 2017
(Dollars in thousands)
Commercial, financial, leasing, etc. $ 283,899 $ 405,846 $ 366,094 $ 330,055 $ 328,599
Commercial real estate 557,239 670,719 322,201 341,655 374,085
Residential real estate 71,726 103,590 56,033 69,125 65,405
Consumer 556,362 556,232 229,118 200,564 170,809
Unallocated - - 77,625 78,045 78,300
Total $ 1,469,226 $ 1,736,387 $ 1,051,071 $ 1,019,444 $ 1,017,198
As a Percentage of Loans and Leases
Outstanding, Net of Unearned Discount
Commercial, financial, leasing, etc. 1.21 % 1.47 % 1.54 % 1.44 % 1.51 %
Commercial real estate 1.57 1.78 .91 .99 1.12
Residential real estate .45 .62 .35 .40 .33
Consumer 3.10 3.36 1.49 1.44 1.29
Total 1.58 1.76 1.16 1.15 1.16
91-------------------------------------------------------------------------------- Management believes that the allowance for credit losses atDecember 31, 2021 appropriately reflected expected credit losses inherent in the portfolio as of that date. The allowance for credit losses totaled$1.47 billion atDecember 31, 2021 ,$1.74 billion atDecember 31, 2020 , and$1.18 billion atJanuary 1, 2020 when amended guidance became effective. The allowance for credit losses was$1.05 billion atDecember 31, 2019 . The decrease in the allowance in 2021 reflects improved financial forecasts as compared with those as ofDecember 31, 2020 . The increase in the allowance in 2020 as compared with 2019 reflected the$132 million addition attributable the adoption of the new accounting standard as well as the expected impact of forecasted economic conditions resulting from the COVID-19 pandemic on borrowers' abilities to repay loans. As a percentage of loans outstanding, the allowance was 1.58% atDecember 31, 2021 , 1.76% atDecember 31, 2020 and 1.16% atDecember 31, 2019 . Excluding the impact of$1.2 billion and$5.4 billion of government-guaranteed PPP loans outstanding atDecember 31, 2021 andDecember 31, 2020 , respectively, the allowance as a percentage of total loans and leases was 1.60% and 1.86%, respectively. The level of the allowance reflects management's evaluation of the loan and lease portfolio using the methodology and considering the factors as described herein. Should the various economic forecasts and credit factors considered by management in establishing the allowance for credit losses change and should management's assessment of losses in the loan portfolio also change, the level of the allowance as a percentage of loans could increase or decrease in future periods. The reported level of the allowance reflects management's evaluation of the loan and lease portfolio as of each respective date. The ratio of the allowance for credit losses to total nonaccrual loans at the end of 2021, 2020 and 2019 was 71%, 92% and 109%, respectively. Given the Company's general position as a secured lender and its practice of charging off loan balances when collection is deemed doubtful, that ratio and changes in the ratio are generally not an indicative measure of the adequacy of the Company's allowance for credit losses, nor does management rely upon that ratio in assessing the adequacy of the Company's allowance for credit losses. The Company had no concentrations of credit extended to any specific industry that exceeded 10% of total loans atDecember 31, 2021 , however residential real estate loans comprised approximately 17% of the loan portfolio. Outstanding loans to foreign borrowers aggregated$197 million atDecember 31, 2021 , or .2% of total loans and leases. Other Income Other income aggregated$2.17 billion in 2021, up from$2.09 billion and$2.06 billion in 2020 and 2019, respectively. The rise in other income from 2020 to 2021 was largely attributable to higher trust income, service charges on deposit accounts, brokerage services income, merchant discount and credit card fees and letter of credit and other credit-related fees, partially offset by lower trading account and foreign exchange gains, higher valuation losses on investment securities and a decline in the level of distributions from BLG. The growth experienced from 2019 to 2020 reflected higher mortgage banking revenues and trust income, partially offset by declines in service charges on deposit accounts, trading account and foreign exchange gains and letter of credit and other credit-related fees. Mortgage banking revenues aggregated$571 million in 2021,$567 million in 2020 and$458 million in 2019. Mortgage banking revenues are comprised of both residential and commercial mortgage banking activities. The Company's involvement in commercial mortgage banking activities includes the origination, sales and servicing of loans under the multifamily loan programs of Fannie Mae, Freddie Mac and theU.S. Department of Housing and Urban Development . Residential mortgage banking revenues, consisting of realized gains from sales of residential real estate loans and loan servicing rights, unrealized gains and losses on residential real estate loans 92 -------------------------------------------------------------------------------- held for sale and related commitments, residential real estate loan servicing fees, and other residential real estate loan-related fees and income, were$406 million in 2021,$424 million in 2020 and$317 million in 2019. The higher residential mortgage banking revenues in 2021 and 2020 as compared with 2019 resulted from higher gains associated with loans held for sale, reflecting higher origination volumes and improved margins. Late in the third quarter of 2021, the Company began to originate the majority of its residential real estate loans to retain in its loan portfolio rather than for sale, contributing to the reduction in residential mortgage banking revenues from 2020. New commitments to originate residential real estate loans to be sold were approximately$3.9 billion in 2021, compared with$4.5 billion in 2020 and$2.7 billion in 2019. The decrease in 2021 from 2020 reflects the retention of originated residential real estate loans beginning late in the third quarter of 2021. Realized gains from sales of residential real estate loans and loan servicing rights and recognized net unrealized gains or losses attributable to residential real estate loans held for sale, commitments to originate loans for sale and commitments to sell loans aggregated to gains of$164 million in 2021,$191 million in 2020 and$72 million in 2019. Loans held for sale that were secured by residential real estate totaled$474 million and$777 million atDecember 31, 2021 and 2020, respectively. Commitments to sell residential real estate loans and commitments to originate residential real estate loans for sale at pre-determined rates totaled$617 million and$233 million , respectively, atDecember 31, 2021 ,$1.47 billion and$1.03 billion , respectively, atDecember 31, 2020 and$713 million and$423 million , respectively, atDecember 31, 2019 . Net recognized unrealized gains on residential real estate loans held for sale, commitments to sell loans and commitments to originate loans for sale were$10 million atDecember 31, 2021 , compared with$52 million atDecember 31, 2020 and$12 million atDecember 31, 2019 . Changes in such net unrealized gains are recorded in mortgage banking revenues and resulted in a net decrease in revenue of$16 million in 2021, compared with net increases of$40 million and$5 million in 2020 and 2019, respectively. Revenues from servicing residential real estate loans for others totaled$242 million in 2021 compared with$233 million in 2020 and$245 million in 2019. Residential real estate loans serviced for others aggregated$97.9 billion atDecember 31, 2021 ,$94.4 billion a year earlier and$95.1 billion atDecember 31, 2019 . Reflected in residential real estate loans serviced for others were loans sub-serviced for others of$74.7 billion ,$68.1 billion and$62.8 billion atDecember 31, 2021 , 2020 and 2019, respectively. Revenues earned for sub-servicing loans totaled$153 million in 2021, compared with$129 million in 2020 and$125 million in 2019. The contractual servicing rights associated with loans sub-serviced by the Company were predominantly held by affiliates of BLG. Information about the Company's relationship with BLG and its affiliates is included in note 25 of Notes to Financial Statements. Capitalized residential mortgage servicing assets totaled$217 million atDecember 31, 2021 (net of a$24 million valuation allowance), compared with$201 million (net of a$30 million valuation allowance) and$237 million (net of a$7 million valuation allowance) atDecember 31, 2020 and 2019, respectively. Reflecting changes in fair value of some of the servicing rights in comparison to the amortized cost of such rights, a$6 million reversal of the valuation allowance for impairment of capitalized residential mortgage servicing rights was recorded in 2021, compared with provisions of$23 million and$7 million recorded in 2020 and 2019, respectively. Additional information about the Company's capitalized residential mortgage servicing assets, including information about the calculation of estimated fair value, is presented in note 7 of Notes to Financial Statements. Commercial mortgage banking revenues totaled$165 million in 2021, compared with$143 million in 2020 and$141 million in 2019. Included in such amounts were revenues from loan origination and sales activities of$89 million in 2021,$84 million in 2020 and$81 million in 2019. Commercial real estate loans originated for sale to other investors totaled approximately$4.0 billion 93 -------------------------------------------------------------------------------- in each of 2021 and 2019, compared with$3.4 billion in 2020. Loan servicing revenues totaled$76 million in 2021,$59 million in 2020 and$60 million in 2019. The higher servicing revenues in 2021 were reflective of fees received from customers who repaid loans prior to maturity. Capitalized commercial mortgage servicing assets were$133 million at each ofDecember 31, 2021 andDecember 31, 2020 and$131 million atDecember 31, 2019 . Commercial real estate loans serviced for other investors totaled$23.7 billion atDecember 31, 2021 ,$22.2 billion atDecember 31, 2020 and$21.0 billion atDecember 31, 2019 , and included$4.0 billion at each ofDecember 31, 2021 andDecember 31, 2020 and$3.9 billion atDecember 31, 2019 of loan balances for which investors had recourse to the Company if such balances are ultimately uncollectable. Included in commercial real estate loans serviced for others were loans sub-serviced for others of$3.5 billion atDecember 31, 2021 ,$3.3 billion atDecember 31, 2020 . and$3.4 billion atDecember 31, 2019 . Commitments to sell commercial real estate loans and commitments to originate commercial real estate loans for sale aggregated$751 million and$325 million , respectively, atDecember 31, 2021 ,$641 million and$364 million , respectively, atDecember 31, 2020 and$193 million and$164 million , respectively, atDecember 31, 2019 . Commercial real estate loans held for sale were$425 million ,$278 million and$28 million atDecember 31, 2021 , 2020 and 2019, respectively. The higher balances atDecember 31, 2021 and 2020, as compared withDecember 31, 2019 , reflect loans originated later in each year that had not been delivered to investors by year end. Service charges on deposit accounts totaled$402 million in 2021, compared with$371 million in 2020 and$433 million in 2019. The lower service charges in 2020 as compared with 2021 and 2019 reflect reduced consumer service charges, predominantly resulting from COVID-19 related fee waivers and lower customer transaction activity. The decrease from 2019 to 2020 also reflected lower commercial service charges, largely due to higher customer deposit levels that could be used by those customers to offset transaction related fees. InFebruary 2022 , the Company announced it will be eliminating non-sufficient funds fees and overdraft protection transfer charges from linked deposit accounts as well as reducing overdraft fees and limiting daily fee assessments to once per day. The Company estimates these changes will reduce income from service charges on deposit accounts by approximately$40 million in 2022. Trust income includes fees related to two significant businesses. The Institutional Client Services ("ICS") business provides a variety of trustee, agency, investment management and administrative services for corporations and institutions, investment bankers, corporate tax, finance and legal executives, and other institutional clients who: (i) use capital markets financing structures; (ii) use independent trustees to hold retirement plan and other assets; and (iii) need investment and cash management services. The Wealth Advisory Services ("WAS") business offers personal trust, planning, fiduciary, asset management, family office and other services designed to help high net worth individuals and families grow, preserve and transfer wealth. Trust income was$645 million in 2021, compared with$602 million in 2020 and$573 million in 2019. Revenues associated with the ICS business were$375 million in 2021,$342 million in 2020 and$311 million in 2019. The increases in ICS revenue in 2021 and 2020 reflect sales activities and increased retirement services income resulting from growth in collective fund balances. Revenues attributable to WAS totaled$255 million in 2021 and$233 million in each of 2020 and 2019. As compared with the previous two years, revenue in 2021 reflected an increase related to equity market performance. Revenue in 2021 and 2020 was offset by proprietary fund money market fee waivers as a result of the low interest rate environment. Trust assets under management were$165.6 billion and$135.8 billion atDecember 31, 2021 and 2020, respectively. Trust assets under management include the Company's proprietary mutual funds' assets of$13.2 billion atDecember 31, 2021 and$12.9 billion atDecember 31, 2020 . Additional trust income from investment management activities was$15 million ,$27 million and$29 million in 2021, 2020 and 2019, respectively, and includes fees earned from retail customer investment accounts. 94 -------------------------------------------------------------------------------- Brokerage services income, which includes revenues from the sale of mutual funds and annuities and securities brokerage fees and, sinceJune 2021 , sales of select investment products of LPL Financial (as described below), totaled$63 million in 2021, compared with$47 million in 2020 and$49 million in 2019. The increase in brokerage services income in 2021 reflects a change inJune 2021 in product delivery to retail brokerage and certain trust customers related to the LPL Financial relationship. Revenues associated with the sale of investment products of LPL Financial, an independent financial services broker, are included in "brokerage services income." Prior to the transition to LPL Financial's product platform, revenues earned by the Company from providing those customers with proprietary trust products managed by the Company were reported as trust income. Trading account and foreign exchange activity resulted in gains of$24 million in 2021,$41 million in 2020 and$62 million in 2019. The decline in gains resulted predominantly from decreased activity related to interest rate swap agreements with commercial customers. The Company enters into interest rate swap agreements and foreign exchange contracts with customers who need such services and concomitantly enters into offsetting trading positions with third parties to minimize the risks involved with these types of transactions. Information about the notional amount of interest rate, foreign exchange and other contracts entered into by the Company for trading account purposes is included in note 19 of Notes to Financial Statements and herein under the heading "Liquidity, Market Risk, and Interest Rate Sensitivity." The Company recognized net losses on investment securities of$21 million and$9 million in 2021 and 2020, respectively, compared with net gains of$18 million in 2019. The gains and losses represented unrealized gains and losses on investments in Fannie Mae and Freddie Mac preferred stock. Other revenues from operations totaled$483 million in 2021, compared with$471 million in 2020 and$469 million in 2019. Comparing 2021 with 2020, higher merchant discount, credit card interchange and letter of credit and credit-related fees, largely loan syndication fees, were partially offset by lower income received from BLG during 2021. Comparing 2020 with 2019, higher income received from BLG during 2020 was offset by declines in letter of credit and credit-related fees, predominantly loan syndication fees. Included in other revenues from operations were the following significant components. Letter of credit and other credit-related fees totaled$128 million ,$109 million and$124 million in 2021, 2020 and 2019, respectively. The increased level of such fees in 2021 and 2019 resulted largely from higher loan syndication fees as compared with 2020. Revenues from merchant discount and credit card fees were$140 million in 2021,$111 million in 2020 and$117 million in 2019. The higher level of such revenues in 2021 was the result of increased customer transaction activity reflecting lessened pandemic related restrictions on business and customer activity as compared with 2020. Tax-exempt income earned from bank owned life insurance, which includes increases in the cash surrender value of life insurance policies and benefits received, aggregated$47 million in 2021,$48 million in 2020 and$50 million in 2019. Insurance-related sales commissions and other revenues totaled$47 million in each of 2021, 2020 and 2019. Automated teller machine usage fees aggregated$11 million in 2021,$9 million in 2020 and$13 million in 2019. M&T's investment in BLG resulted in cash distributions declared and paid by BLG that are included in "other revenues from operations" of$30 million in 2021,$53 million in 2020 and$37 million in 2019. During 2017, the operating losses of BLG resulted in M&T reducing the carrying value of its investment in BLG to zero. Subsequently, M&T has received cash distributions when declared by BLG that result in the recognition of income by M&T. M&T expects cash distributions from BLG in the future, but the timing and amount of those distributions cannot be estimated. BLG is entitled to receive distributions from its affiliates that provide asset management and other services that are available for distribution to BLG's owners, including M&T. Information about the 95 --------------------------------------------------------------------------------
Company's relationship with BLG and its affiliates is included in note 25 of Notes to Financial Statements.
Other Expense Other expense aggregated$3.61 billion in 2021, compared with$3.39 billion in 2020 and$3.47 billion in 2019. Included in those amounts are expenses considered to be "nonoperating" in nature consisting of amortization of core deposit and other intangible assets of$10 million ,$15 million and$19 million in 2021, 2020 and 2019, respectively and merger-related expenses of$44 million in 2021. No merger-related expenses were incurred in 2020 and 2019. Exclusive of those nonoperating expenses, noninterest operating expenses aggregated$3.56 billion in 2021,$3.37 billion in 2020 and$3.45 billion in 2019. The higher level of noninterest operating expenses in 2021 as compared with the prior year reflected increased costs for salaries and employee benefits (predominantly incentive compensation), outside data processing and software,FDIC assessments, and professional services expenses, partially offset by a reduction in the valuation allowance for capitalized mortgage servicing rights as compared to an increase in 2020. Contributing to the lower level of noninterest operating expense in 2020 as compared with 2019 were decreased costs for professional services, legal-related matters, advertising and marketing, and travel and entertainment. Additionally, a$48 million charge was recorded in 2019 to reduce the carrying value of an investment in an asset manager that had been accounted for using the equity method of accounting to its estimated realizable value. Those factors were partially offset by higher costs for salaries and employee benefits, outside data processing and software, increases to the valuation allowance for capitalized residential mortgage servicing rights and$14 million of expenses related to the planned transition of the support for the Company's retail brokerage and advisory business to the platform of LPL Financial. Salaries and employee benefits expense aggregated$2.05 billion in 2021, compared with$1.95 billion and$1.90 billion in 2020 and 2019, respectively. The higher levels of expenses in 2021 as compared with 2020 reflect the impact of higher incentive compensation, including commissions, as well as merit and other increases for employees. Stock-based compensation totaled$85 million in 2021, compared with$80 million in 2020 and$76 million in 2019. The number of full-time equivalent employees were 17,421 and 17,076 atDecember 31, 2021 and 2020, respectively, compared with 17,503 atDecember 31, 2019 . The Company provides pension and other postretirement benefits for its employees, including pension, retirement savings and post-retirement benefit plans. Expenses related to such benefits totaled$128 million in 2021,$118 million in 2020 and$76 million in 2019. The amounts recorded in salaries and employee benefits expense and other costs of operations, respectively, from the preceding sentence were as follows:$125 million and$3 million in 2021;$118 million and ($329,000 ) in 2020; and$98 million and($22) million in 2019. The Company sponsors both defined benefit and defined contribution pension plans. Pension benefit expense for those plans was$68 million in 2021,$60 million in 2020 and$31 million in 2019. Components of pension expense include the amortization of net unrecognized gains and losses included in accumulated other comprehensive income. Such net unrecognized gains and losses have generally been amortized over the average remaining service periods of active participants in the plan. If all or substantially all of the plan's participants are inactive, GAAP provides for the average remaining life expectancy of the participants to be used instead of average remaining service periods. Substantially all of the participants in the Company's qualified defined benefit pension plan were inactive and, beginning in 2022, the average remaining life expectancy will be utilized prospectively to amortize the net unrecognized gains and losses of the Plan existent at each measurement date. The change is expected to increase the amortization period by approximately sixteen years beginning in 2022 and, accordingly, reduce the amount of amortization of unrecognized losses recorded in the 2022 net periodic pension expense that otherwise would have been recorded by approximately$35 million . 96 -------------------------------------------------------------------------------- Information about the Company's pension plans, including significant assumptions utilized in completing actuarial calculations for the plans, is included in note 13 of Notes to Financial Statements. The Company's retirement savings plan ("RSP") is a defined contribution plan in which eligible employees of the Company may defer up to 50% of qualified compensation via contributions to the plan. RSP expense reflecting the Company's employer matching contribution totaled$63 million in 2021,$62 million in 2020 and$48 million in 2019. Excluding the nonoperating expense items already noted, nonpersonnel operating expenses were$1.51 billion in 2021,$1.42 billion in 2020 and$1.55 billion in 2019. The increase in such expenses in 2021 as compared with 2020 reflects a rise in expenditures for outside data processing and software,FDIC assessments and professional services, partially offset by a reduction in the valuation allowance for capitalized mortgage servicing rights as compared to an increase in 2020. The decrease in nonpersonnel operating expenses from 2019 to 2020 reflected lower expenditures for professional services, legal-related matters, advertising and marketing, and travel and entertainment. Additionally, a$48 million charge from the 2019 sale of an investment in an asset manager contributed to the higher expenses in 2019. Those factors were partially offset by higher costs for outside data processing and software, increases to the valuation allowance for capitalized residential mortgage servicing rights and$14 million of expenses related to the planned transition of the support for the Company's retail brokerage and advisory business to the platform of LPL Financial. During 2019 the Company increased its reserve for legal matters, predominantly related to a subsidiary's role as trustee of Employee Stock Ownership Plans in its Institutional Client Services business. The Company made contributions toThe M&T Charitable Foundation of$28 million and$8 million in 2021 and 2020, respectively. There were no similar contributions in 2019. Income Taxes The provision for income taxes was$596 million in 2021,$416 million in 2020 and$618 million in 2019. The effective tax rates were 24.3% in each of 2021 and 2019 and 23.5% in 2020. The effective tax rate is affected by the level of income earned that is exempt from tax relative to the overall level of pre-tax income, the level of income allocated to the various state and local jurisdictions where the Company operates, because tax rates differ among such jurisdictions, and the impact of any large discrete or infrequently occurring items. The Company's effective tax rate in future periods will also be affected by any change in income tax laws or regulations and interpretations of income tax regulations that differ from the Company's interpretations by any of various tax authorities that may examine tax returns filed by M&T or any of its subsidiaries. Information about amounts accrued for uncertain tax positions and a reconciliation of income tax expense to the amount computed by applying the statutory federal income tax rate to pre-tax income is provided in note 14 of Notes to Financial Statements. International Activities Assets and revenues associated with international activities represent less than 1% of the Company's consolidated assets and revenues. International assets included$197 million and$170 million of loans to foreign borrowers atDecember 31, 2021 and 2020, respectively. During the second quarter of 2021, the Company introduced a new interest-bearing sweep product (included in savings and interest-bearing deposits) that replaced the Eurodollar sweep product previously recorded asCayman Islands office deposits. As a result, there were no outstanding deposits at theCayman Islands office atDecember 31, 2021 and the office is closed. Deposits in the Company's office in theCayman Islands aggregated$652 million atDecember 31, 2020 . Loans atM&T Bank's commercial banking office inOntario, Canada included in international assets as ofDecember 31, 2021 and 2020 totaled$153 million and$149 million , respectively. Deposits at that office were$32 million at each of 97 --------------------------------------------------------------------------------December 31, 2021 andDecember 31, 2020 . The Company also offers trust-related services inEurope . Revenues from providing such services during 2021, 2020 and 2019 were approximately$38 million ,$36 million and$32 million , respectively. Liquidity, Market Risk, and Interest Rate Sensitivity As a financial intermediary, the Company is exposed to various risks, including liquidity and market risk. Liquidity refers to the Company's ability to ensure that sufficient cash flow and liquid assets are available to satisfy current and future obligations, including demands for loans and deposit withdrawals, funding operating costs, and other corporate purposes. Liquidity risk arises whenever the maturities of financial instruments included in assets and liabilities differ. The most significant source of funding for the Company is core deposits, which are generated from a large base of consumer, corporate and institutional customers. That customer base has, over the past several years, become more geographically diverse as a result of expansion of the Company's businesses. Nevertheless, the Company faces competition in offering products and services from a large array of financial market participants, including banks, thrifts, mutual funds, securities dealers and others. Core deposits financed 90% of the Company's earning assets atDecember 31, 2021 , compared with 88% atDecember 31, 2020 and 83% atDecember 31, 2019 . The Company supplements funding provided through core deposits with various short-term and long-term wholesale borrowings, including overnight federal funds purchased, short-term advances from the FHLB ofNew York , brokered deposits and longer-term borrowings. AtDecember 31, 2021 ,M&T Bank had short-term and long-term credit facilities with the FHLBs aggregating$16.2 billion . Outstanding borrowings under FHLB credit facilities totaled$2 million at each ofDecember 31, 2021 and 2020. Such borrowings were secured by loans and investment securities.M&T Bank had an available line of credit with the FRB ofNew York that totaled approximately$13.8 billion atDecember 31, 2021 . The amount of that line is dependent upon the balances of loans and securities pledged as collateral. There were no borrowings outstanding under such line of credit atDecember 31, 2021 and 2020. Senior notes issued and outstanding totaled$2.4 billion atDecember 31, 2021 and$2.8 billion atDecember 31, 2020 . OnJanuary 25, 2021 ,$350 million of variable rate senior notes ofM&T Bank matured. In addition, onMarch 1, 2021 ,M&T Bank redeemed$500 million of subordinated notes that were due to mature onDecember 1, 2021 . The Company has, from time to time, issued subordinated capital notes and junior subordinated debentures associated with trust preferred securities to provide liquidity and enhance regulatory capital ratios. Pursuant to the Dodd-Frank Act, the Company's junior subordinated debentures associated with trust preferred securities have been removed from the definition of Tier 1 capital but, similar to other subordinated capital notes, are considered Tier 2 capital and are includable in total regulatory capital. Information about the Company's borrowings is included in note 9 of Notes to Financial Statements. The Company has also benefited from the placement of brokered deposits. The Company has brokered savings and interest-bearing checking deposit accounts that aggregated$3.2 billion and$4.5 billion atDecember 31, 2021 and 2020, respectively. Brokered time deposits were not a significant source of funding as of those dates. The Company's ability to obtain funding from these sources could be negatively impacted should the Company experience a substantial deterioration in its financial condition or its debt ratings, or should the availability of short-term funding become restricted due to a disruption in the financial markets. The Company attempts to quantify such credit-event risk by modeling scenarios that estimate the liquidity impact resulting from a short-term ratings downgrade over various grading levels. Such impact is estimated by attempting to measure the effect on available unsecured lines of credit, available capacity from secured borrowing sources and securitizable assets. Information about the credit ratings 98 -------------------------------------------------------------------------------- ofM&T andM&T Bank is presented in table 16. Additional information regarding the terms and maturities of all of the Company's short-term and long-term borrowings is provided in note 9 of Notes to Financial Statements. In addition to deposits and borrowings, other sources of liquidity include maturities of investment securities and other earning assets, repayments of loans and investment securities, and cash generated from operations, such as fees collected for services. Table 16 DEBT RATINGS Standard Moody's and Poor's FitchM&T Bank Corporation Senior debt A3 BBB+ A Subordinated debt A3 BBB A- M&T Bank Short-term deposits Prime-1 A-2 F1 Long-term deposits Aa3 A- A+ Senior debt A3 A- A Subordinated debt A3 BBB+ A- Certain customers of the Company obtain financing through the issuance of variable rate demand bonds ("VRDBs"). The VRDBs are generally enhanced by letters of credit provided byM&T Bank .M&T Bank oftentimes acts as remarketing agent for the VRDBs and, at its discretion, may from time-to-time own some of the VRDBs while such instruments are remarketed. When this occurs, the VRDBs are classified as trading account assets in the Company's consolidated balance sheet. Nevertheless,M&T Bank is not contractually obligated to purchase the VRDBs. The value of VRDBs in the Company's trading account was not material atDecember 31, 2021 orDecember 31, 2020 . The total amount of VRDBs outstanding backed byM&T Bank letters of credit was$662 million and$725 million atDecember 31, 2021 and 2020, respectively.M&T Bank also serves as remarketing agent for most of those bonds. 99 --------------------------------------------------------------------------------
Table 17
MATURITY DISTRIBUTION OF LOANS AND LEASES(a)
December 31, 2021 Demand 2022 2023 - 2026 2027 - 2036 After 2036
(In thousands)
Commercial, financial, leasing, etc. $ 5,492,359 $ 4,219,626 $ 12,395,898 $ 1,170,961 $ 119,074
Commercial real estate 100,704 13,080,694 18,058,994 2,960,580 89,210
Residential real estate 46,966 852,195 2,683,556 5,987,321 6,008,251
Consumer 502,772 1,625,451 6,161,602 6,120,006 3,377,688
Total $ 6,142,801 $ 19,777,966 $ 39,300,050 $ 16,238,868 $ 9,594,223
Floating or adjustable interest rates:
Commercial, financial, leasing, etc. $ 7,377,411 $ 298,217 $ 2,127
Commercial real estate 12,468,282 1,580,905 36,038
Residential real estate 449,620 1,109,820 1,348,893
Consumer 650,713 312,697 2,535,347
Fixed or predetermined interest rates:
Commercial, financial, leasing, etc. 5,018,487 872,744 116,947
Commercial real estate 5,590,712 1,379,675 53,172
Residential real estate 2,233,936 4,877,501 4,659,358
Consumer 5,510,889 5,807,309 842,341
Total $ 39,300,050 $ 16,238,868 $ 9,594,223 (a) The data do not include nonaccrual loans.
The Company enters into contractual obligations in the normal course of business that require future cash payments. The contractual amounts and timing of those payments as ofDecember 31, 2021 are summarized in table 18. Off-balance sheet commitments to customers may impact liquidity, including commitments to extend credit, standby letters of credit, commercial letters of credit, financial guarantees and indemnification contracts, and commitments to sell real estate loans. Because many of these commitments or contracts expire without being funded in whole or in part, the contract amounts are not necessarily indicative of future cash flows. Further discussion of these commitments is provided in note 22 of Notes to Financial Statements. Table 18 summarizes the Company's other commitments as ofDecember 31, 2021 and the timing of the expiration of such commitments. 100 -------------------------------------------------------------------------------- Table 18 CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS Less Than One One to Three Three to Five Over Five December 31, 2021 Year Years Years Years Total (In thousands) Payments due for contractual obligations Time deposits$ 2,300,825 $ 376,848 $ 130,290 $ -$ 2,807,963 Short-term borrowings 47,046 - - - 47,046 Long-term borrowings 903,864 775,636 749,740 1,056,129 3,485,369 Operating leases 94,566 145,692 91,454 99,400 431,112 Other 279,570 109,568 17,005 18,401 424,544 Total$ 3,625,871 $ 1,407,744 $ 988,489 $ 1,173,930 $ 7,196,034 Other commitments Commitments to extend credit (a)$ 17,060,039 $ 8,170,578 $ 5,459,006 $ 3,629,521 $ 34,319,144 Standby letters of credit 1,279,387 542,887 228,757 100,564 2,151,595 Commercial letters of credit 14,142 666 17,173 - 31,981 Financial guarantees and indemnification contracts 41,988 282,282 734,726 3,152,801 4,211,797 Commitments to sell real estate loans 1,214,036 153,487 - - 1,367,523 Total$ 19,609,592 $ 9,149,900 $ 6,439,662 $ 6,882,886 $ 42,082,040
(a) Amounts exclude discretionary funding commitments to commercial customers of
funding.
M&T's primary source of funds to pay for operating expenses, shareholder
dividends and treasury stock repurchases has historically been the receipt of
dividends from its banking subsidiaries, which are subject to various regulatory
limitations. Dividends from any bank subsidiary to M&T are limited by the amount
of earnings of the subsidiary in the current year and the two preceding years.
For purposes of that test, at December 31, 2021 approximately $1.6 billion was
available for payment of dividends to M&T from banking subsidiaries. M&T also
may obtain funding through long-term borrowings. Outstanding senior notes of M&T
at December 31, 2021 and December 31, 2020 were $766 million and $783 million ,
respectively. Junior subordinated debentures of M&T associated with trust
preferred securities outstanding at December 31, 2021 and December 31, 2020
totaled $532 million and $528 million , respectively.
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MATURITY AND TAXABLE-EQUIVALENT YIELD OF INVESTMENT SECURITIES
One Year One to Five Five to Ten Over Ten
December 31, 2021 or Less Years Years Years Total
(Dollars in thousands)
Investment securities available for
sale(a)
U.S. Treasury and federal agencies
Carrying value $ 5,165 $ 673,525 $ - $ - $ 678,690
Yield 1.14 % .82 % - - .83 %
Mortgage-backed securities(b)
Government issued or guaranteed
Carrying value 311,207 1,317,943 906,798 619,364 3,155,312
Yield 2.28 % 2.28 % 2.27 % 2.23 % 2.27 %
Other debt securities
Carrying value 1,778 7,302 86,205 26,517 121,802
Yield 2.34 % 3.39 % 2.70 % 4.00 % 3.04 %
Total investment securities
available for sale
Carrying value 318,150 1,998,770 993,003 645,881 3,955,804
Yield 2.26 % 1.78 % 2.31 % 2.31 % 2.04 %
Investment securities held to
maturity
U.S. Treasury and federal agencies
Carrying value 3,052 - - - 3,052
Yield .12 % - - - .12 %
Obligations of states and political
subdivisions
Carrying value 177 - - - 177
Yield 4.87 % - - - 4.87 %
Mortgage-backed securities(b)
Government issued or guaranteed
Carrying value 120,585 504,540 609,850 1,432,353 2,667,328
Yield 2.16 % 2.16 % 2.16 % 2.16 % 2.16 %
Privately issued
Carrying value 3,813 15,265 19,079 23,398 61,555
Yield 2.72 % 2.72 % 2.72 % 2.60 % 2.66 %
Other debt securities
Carrying value - - - 2,562 2,562
Yield - - - 4.32 % 4.32 %
Total investment securities held to
maturity
Carrying value 127,627 519,805 628,929 1,458,313 2,734,674
Yield 2.13 % 2.18 % 2.18 % 2.17 % 2.17 %
Equity and other securities
Equity securities
Carrying Value 77,640
Yield .50 %
Other investment securities
Carrying Value 387,742
Yield 2.90 %
Total investment securities
Carrying value $ 445,777 $ 2,518,575 $ 1,621,932 $ 2,104,194 $ 7,155,860
Yield 2.22 % 1.86 % 2.25 % 2.21 % 2.12 %
(a) Investment securities available for sale are presented at estimated fair
value. Yields on such securities are based on amortized cost.
(b) Maturities are reflected based upon contractual payments due. Actual
maturities are expected to be significantly shorter as a result of loan
repayments in the underlying mortgage pools.
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Table 20
MATURITY OF TIME DEPOSITS WITH BALANCES OVER $250,000
December 31,
2021
(In thousands)
3 months or less $ 182,077
Over 3 through 6 months 124,165
Over 6 through 12 months 29,210
Over 12 months 9,736
Total $ 345,188
Management closely monitors the Company's liquidity position on an ongoing basis
for compliance with internal policies and believes that available sources of
liquidity are adequate to meet funding needs anticipated in the normal course of
business. Management does not anticipate engaging in any activities, either
currently or in the long-term, for which adequate funding would not be available
and would therefore result in a significant strain on liquidity at either M&T or
its subsidiary banks.
Market risk is the risk of loss from adverse changes in the market prices and/or
interest rates of the Company's financial instruments. The primary market risk
the Company is exposed to is interest rate risk. Interest rate risk arises from
the Company's core banking activities of lending and deposit-taking, because
assets and liabilities reprice at different times and by different amounts as
interest rates change. As a result, net interest income earned by the Company is
subject to the effects of changing interest rates. The Company measures interest
rate risk by calculating the variability of net interest income in future
periods under various interest rate scenarios using projected balances for
earning assets, interest-bearing liabilities and derivatives used to hedge
interest rate risk. Management's philosophy toward interest rate risk management
is to limit the variability of net interest income. The balances of financial
instruments used in the projections are based on expected growth from forecasted
business opportunities, anticipated prepayments of loans and investment
securities, and expected maturities of investment securities, loans and
deposits. Management uses a "value of equity" model to supplement the modeling
technique described above. Those supplemental analyses are based on discounted
cash flows associated with on- and off-balance sheet financial instruments. Such
analyses are modeled to reflect changes in interest rates and provide management
with a long-term interest rate risk metric. The Company has entered into
interest rate swap agreements to help manage exposure to interest rate risk. At
December 31, 2021 , the aggregate notional amount of interest rate swap
agreements entered into for interest rate risk management purposes that were
currently in effect was $15.0 billion . In addition, the Company has entered into
$8.4 billion of forward-starting interest rate swap agreements. Information
about interest rate swap agreements entered into for interest rate risk
management purposes is included herein under the heading "Net Interest
Income/Lending and Funding Activities" and in note 19 of Notes to Financial
Statements.
The Company's Asset-Liability Committee, which includes members of senior
management, monitors the sensitivity of the Company's net interest income to
changes in interest rates with the aid of a computer model that forecasts net
interest income under different interest rate scenarios. In modeling changing
interest rates, the Company considers different yield curve shapes that consider
both parallel (that is, simultaneous changes in interest rates at each point on
the yield curve) and non-parallel (that is, allowing interest rates at points on
the yield curve to vary by different amounts) shifts in the yield curve. In
utilizing the model, market-implied forward interest rates over the
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subsequent twelve months are generally used to determine a base interest rate
scenario for the net interest income simulation. That calculated base net
interest income is then compared to the income calculated under the varying
interest rate scenarios. The model considers the impact of ongoing lending and
deposit-gathering activities, as well as interrelationships in the magnitude and
timing of the repricing of financial instruments, including the effect of
changing interest rates on expected prepayments and maturities. When deemed
prudent, management has taken actions to mitigate exposure to interest rate risk
through the use of on- or off-balance sheet financial instruments and intends to
do so in the future. Possible actions include, but are not limited to, changes
in the pricing of loan and deposit products, modifying the composition of
earning assets and interest-bearing liabilities, and adding to, modifying or
terminating existing interest rate swap agreements or other financial
instruments used for interest rate risk management purposes.
Table 21 displays as of December 31, 2021 and 2020 the estimated impact on net
interest income in the base scenario described above resulting from parallel
changes in interest rates across repricing categories during the first modeling
year.
Table 21
SENSITIVITY OF NET INTEREST INCOME TO CHANGES IN INTEREST RATES
Calculated Increase (Decrease)
in Projected Net Interest Income
Changes in interest rates
(In thousands)
+200 basis points $ 533,317 324,684
+100 basis points 297,573 182,661
-100 basis points (204,760 ) (61,792 )
The Company utilized many assumptions to calculate the impact that changes in
interest rates may have on net interest income. The more significant of those
assumptions included the rate of prepayments of mortgage-related assets, cash
flows from derivative and other financial instruments held for non-trading
purposes, loan and deposit volumes and pricing, and deposit maturities. In the
scenarios presented, the Company also assumed gradual changes in interest rates
during a twelve-month period as compared with the base scenario. In the
declining rate scenario, the rate changes may be limited to lesser amounts such
that interest rates remain at or above zero on all points of the yield
curve. The assumptions used in interest rate sensitivity modeling are inherently
uncertain and, as a result, the Company cannot precisely predict the impact of
changes in interest rates on net interest income. Actual results may differ
significantly from those presented due to the timing, magnitude and frequency of
changes in interest rates and changes in market conditions and interest rate
differentials (spreads) between maturity/repricing categories, as well as any
actions, such as those previously described, which management may take to
counter such changes. The sensitivity of net interest income to changes in
interest rates increased as of December 31, 2021 as compared with December 31,
2020 due to the low interest rate environment and composition of the Company's
portfolios of earning assets and interest-bearing liabilities, in particular the
increased balance of interest-bearing deposits at banks.
Table 22 presents cumulative totals of net assets (liabilities) repricing on a
contractual basis within the specified time frames, as adjusted for the impact
of interest rate swap agreements entered into for interest rate risk management
purposes. Management believes that this measure does not appropriately depict
interest rate risk since changes in interest rates do not necessarily affect all
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categories of earning assets and interest-bearing liabilities equally nor, as
assumed in the table, on the contractual maturity or repricing date.
Furthermore, this static presentation of interest rate risk fails to consider
the effect of ongoing lending and deposit gathering activities, projected
changes in balance sheet composition or any subsequent interest rate risk
management activities the Company is likely to implement.
Table 22
CONTRACTUAL REPRICING DATA
Three Months Four to Twelve One to After
December 31, 2021 or Less Months Five Years Five Years Total
(Dollars in thousands)
Loans and leases, net$ 47,499,655 $ 6,871,241
212,554 92,732 737,854 6,112,720 7,155,860 Other earning assets
41,921,266 783 - - 41,922,049
Total earning assets 89,633,475 6,964,756 20,604,538 24,787,592 141,990,361
Savings and interest-
checking deposits 68,603,966 - - - 68,603,966
Time deposits 1,071,254 1,229,571 507,138 - 2,807,963
Total interest-
bearing deposits 69,675,220 1,229,571 507,138 - 71,411,929
Short-term borrowings 47,046 - - - 47,046
Long-term borrowings - 903,864 1,525,376 1,056,129 3,485,369 Total interest-
bearing liabilities 69,722,266 2,133,435
2,032,514 1,056,129 74,944,344 Interest rate swap
agreements (15,000,000 ) 8,150,000 6,350,000 500,000 - Periodic gap$ 4,911,209 $ 12,981,321 $ 24,922,024 $ 24,231,463 Cumulative gap 4,911,209 17,892,530 42,814,554 67,046,017
Cumulative gap as a %
of total earning assets 3.5 % 12.6 % 30.2 % 47.2 %
A significant amount of the Company's interest-earning assets, interest-bearing
liabilities, preferred equity instruments and interest rate swap agreements have
contractual repricing terms that reference the London Interbank Offered Rate
("LIBOR"). Various regulatory bodies have encouraged banks to transition away
from LIBOR as soon as practicable, generally cease entering new contracts that
use LIBOR as a reference rate no later than December 31, 2021 , and for new
contracts entered into before December 31, 2021 to utilize a reference rate
other than LIBOR or include robust language that includes a clearly defined
alternative reference rate after LIBOR's discontinuation. Certain tenors of
LIBOR have ceased publication at December 31, 2021 and complete cessation of
LIBOR publication is expected by June 30, 2023 . Effective December 31, 2021 , the
Company has essentially discontinued entering into new LIBOR-based contracts.
The Company established an enterprise-wide LIBOR transition program in 2019,
which includes a LIBOR Transition Office with senior management level leadership
and dedicated full-time employee staffing. Progress on the LIBOR transition
effort is monitored by executive management as well as the Risk Committee of the
Board of Directors. At December 31, 2021 the Company had LIBOR-based commercial
loans and leases and commercial real estate loans of $37.7 billion and
residential mortgage and consumer loans of $1.9 billion outstanding. As of that
date, approximately
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half of such loans either mature before June 30, 2023 or have been amended to
include appropriate alternative language to be effective upon cessation of LIBOR
publication. Approximately $979 million of borrowings and $850 million of
preferred equity instruments reference LIBOR. The Company's interest rate swap
agreements primarily reference LIBOR. In October 2020 , the International Swaps
and Derivatives Association, Inc. published the IBOR Fallbacks Supplement
("Supplement") and the IBOR Fallback Protocol ("Protocol"). The Protocol enables
market participants to incorporate certain revisions into their legacy
non-cleared derivative trades with other counterparties that also choose to
adhere to the Protocol. M&T adhered to the Protocol in November 2020 and is in
the process of remediating its interest rate swap transactions with its end-user
customers. With respect to the Company's cleared interest rate swap agreements
that reference LIBOR, clearinghouses have adopted the same relevant Secured
Overnight Financing Rate ("SOFR") benchmark alternatives of the Supplement and
Protocol.
As loans mature and new originations occur a larger percentage of the Company's
variable-rate loans are expected to reference SOFR or other indexes, including
the Bloomberg Short Term Bank Yield Index ("BSBY"). At December 31, 2021 , the
Company had approximately $3.6 billion and $55 million of outstanding loan
balances that reference SOFR and BSBY, respectively. Additionally, as of
December 31, 2021 the Company had $5.0 billion of notional amount of interest
rate swap agreements designated as cash flow hedges of commercial real estate
loans, including $3.5 billion of forward-starting interest rate swap agreements
that become effective in 2022 and 2023, and notional amounts of $1.0 billion of
interest rate contracts in the trading account that are referenced to SOFR. The
Company's usage of interest rate swap agreements referenced to SOFR or BSBY is
expected to increase in response to the discontinuation of LIBOR. The Company
continues to work with its customers and other counterparties to remediate
LIBOR-based agreements which expire after June 30, 2023 by incorporating
alternative language, negotiating new agreements, or other means. The
discontinuation of LIBOR and uncertainty relating to the emergence of one or
more alternative benchmark indexes to replace LIBOR could materially impact the
Company's interest rate risk profile and its management thereof.
In addition to the effect of interest rates, changes in fair value of the
Company's financial instruments can also result from a lack of trading activity
for similar instruments in the financial markets. That impact is most notable on
the values assigned to some of the Company's investment securities. Information
about the fair valuation of investment securities is presented in notes 3 and 21
of Notes to Financial Statements.
The Company engages in limited trading account activities to meet the financial
needs of customers and to fund the Company's obligations under certain deferred
compensation plans. Financial instruments utilized for trading account
activities consist predominantly of interest rate contracts, such as interest
rate swap agreements, and forward and futures contracts related to foreign
currencies. The Company generally mitigates the foreign currency and interest
rate risk associated with trading account activities by entering into offsetting
trading positions that are also included in the trading account. The fair values
of trading account positions associated with interest rate contracts and foreign
currency and other option and futures contracts are presented in note 19 of
Notes to Financial Statements. The amounts of gross and net trading account
positions, as well as the type of trading account activities conducted by the
Company, are subject to a well-defined series of potential loss exposure limits
established by management and approved by M&T's Board of Directors. However, as
with any non-government guaranteed financial instrument, the Company is exposed
to credit risk associated with counterparties to the Company's trading account
activities.
The notional amounts of interest rate contracts entered into for trading account
purposes totaled $32.6 billion at December 31, 2021 and $37.8 billion at
December 31, 2020 . The notional amounts of foreign currency and other option and
futures contracts entered into for trading account purposes were $1.1 billion
and $776 million at December 31, 2021 and 2020, respectively. Although the
notional amounts of these contracts are not recorded in the consolidated balance
sheet, the unsettled
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fair values of all financial instruments used for trading account activities are
recorded in the consolidated balance sheet. The fair values of all trading
account assets and liabilities were $468 million and $83 million , respectively,
at December 31, 2021 and $1.1 billion and $117 million , respectively, at
December 31, 2020 . The fair value asset and liability amounts at December 31,
2021 have been reduced by contractual settlements of $54 million and $305
million , respectively, and at December 31, 2020 by contractual settlements of $6
million and $806 million , respectively. The lower balance of trading account
assets at December 31, 2021 as compared with 2020 was largely the result of
decreased values associated with interest rate swap agreements entered into with
commercial customers that are not subject to periodic variation margin
settlement payments. Included in trading account assets at each of December 31,
2021 and 2020 were $21 million of assets related to deferred compensation plans.
Changes in the fair values of such assets are recorded as "trading account and
foreign exchange gains" in the consolidated statement of income. Included in
"other liabilities" in the consolidated balance sheet at each of December 31,
2021 and 2020 were $24 million of liabilities related to deferred compensation
plans. Changes in the balances of such liabilities due to the valuation of
allocated investment options to which the liabilities are indexed are recorded
in "other costs of operations" in the consolidated statement of income. Also
included in trading account assets were investments in mutual funds and other
assets that the Company was required to hold under terms of certain
non-qualified supplemental retirement and other benefit plans that were assumed
by the Company in various acquisitions. Those assets totaled $29 million at each
of December 31, 2021 and December 31, 2020 .
Given the Company's policies, limits and positions, management believes that the
potential loss exposure to the Company resulting from market risk associated
with trading account activities was not material, however, as previously noted,
the Company is exposed to credit risk associated with counterparties to
transactions related to the Company's trading account activities. Additional
information about the Company's use of derivative financial instruments in its
trading account activities is included in note 19 of Notes to Financial
Statements.
Capital
Shareholders' equity was$17.9 billion atDecember 31, 2021 and represented 11.54% of total assets, compared with$16.2 billion or 11.35% atDecember 31, 2020 and$15.7 billion or 13.11% atDecember 31, 2019 . Included in shareholders' equity was preferred stock with financial statement carrying values of$1.75 billion atDecember 31, 2021 , compared with$1.25 billion at each ofDecember 31, 2020 andDecember 31, 2019 . OnAugust 17, 2021 , M&T issued 50,000 shares of Series I Perpetual Fixed-Rate Reset Non-cumulative Preferred Stock, par value$1.00 and liquidation preference of$10,000 per share. ThroughAugust 31, 2026 holders of the Series I preferred stock are entitled to receive, only when, as and if declared by M&T's Board of Directors, non-cumulative cash dividends at an annual rate of 3.5%, payable semiannually in arrears. Subsequent toAugust 31, 2026 holders will be entitled to receive, only when, as and if declared by M&T's Board of Directors, non-cumulative cash dividends at an annual rate of the five-yearU.S. Treasury Rate plus 2.679%, payable semiannually in arrears. The Series I preferred stock may be redeemed at M&T's option, in whole or in part, on any dividend payment date on or afterSeptember 1, 2026 or, in whole but not in part, at any time within 90 days following a regulatory capital treatment event whereby the full liquidation value of the shares no longer qualifies as "additional Tier 1 capital". OnJuly 30, 2019 , M&T issued 40,000 shares of Series G Perpetual Fixed-Rate Reset Non-cumulative Preferred Stock, par value$1.00 per share and liquidation preference of$10,000 per share. ThroughJuly 31, 2024 holders of the Series G preferred stock are entitled to receive, only when, as and if declared by M&T's Board of Directors, non-cumulative cash dividends at an annual rate of 5.0%, payable semiannually in arrears. Subsequent toJuly 31, 2024 holders will be entitled to receive, only when, as and if declared by M&T's Board of Directors, non-cumulative cash dividends at an annual rate of the five-yearU.S. 107 -------------------------------------------------------------------------------- Treasury Rate plus 3.174%, payable semiannually in arrears. The Series G preferred stock may be redeemed at M&T's option, in whole or in part, on any dividend payment date on or afterAugust 1, 2024 or, in whole but not in part, at any time within 90 days following a regulatory capital treatment event whereby the full liquidation value of the shares no longer qualifies as "additional Tier 1 capital." OnAugust 30, 2019 M&T redeemed the 230,000 shares of the Series A and 151,500 shares of the Series C Fixed Rate Cumulative Perpetual Preferred Stock,$1,000 liquidation preference per share, having received the approval of theFederal Reserve to redeem such shares after issuing the Series G preferred stock. Further information concerning M&T's preferred stock can be found in note 10 of Notes to Financial Statements. Common shareholders' equity totaled$16.2 billion , or$125.51 per share, atDecember 31, 2021 , compared with$14.9 billion , or$116.39 per share, atDecember 31, 2020 and$14.5 billion , or$110.78 per share, atDecember 31, 2019 . Tangible equity per common share, which excludes goodwill and core deposit and other intangible assets and applicable deferred tax balances, was$89.80 atDecember 31, 2021 , compared with$80.52 and$75.44 atDecember 31, 2020 and 2019, respectively. The Company's ratio of tangible common equity to tangible assets was 7.68% atDecember 31, 2021 , compared with 7.49% and 8.55% atDecember 31, 2020 and 2019, respectively. Reconciliations of total common shareholders' equity and tangible common equity and total assets and tangible assets as ofDecember 31, 2021 , 2020 and 2019 are presented in table 2. During 2021, 2020 and 2019, the ratio of average total shareholders' equity to average total assets was 11.08%, 11.80% and 13.14%, respectively. The ratio of average common shareholders' equity to average total assets was 10.13%, 10.88% and 12.08% in 2021, 2020 and 2019, respectively. Shareholders' equity reflects accumulated other comprehensive income or loss, which includes the net after-tax impact of unrealized gains or losses on investment securities classified as available for sale, remaining unrealized losses on held-to-maturity securities transferred from available for sale that have not yet been amortized, gains or losses associated with interest rate swap agreements designated as cash flow hedges, foreign currency translation adjustments and adjustments to reflect the funded status of defined benefit pension and other postretirement plans. Net unrealized gains on investment securities reflected in shareholders' equity, net of applicable tax effect, were$78 million , or$.60 per common share, atDecember 31, 2021 ,$145 million , or$1.13 per common share, atDecember 31, 2020 , and$37 million , or$.29 per common share, atDecember 31, 2019 . Changes in unrealized gains and losses on investment securities are predominantly reflective of the impact of changes in interest rates on the values of such securities. Information about unrealized gains and losses as ofDecember 31, 2021 and 2020 is included in note 3 of Notes to Financial Statements. Reflected in the carrying amount of available-for-sale investment securities atDecember 31, 2021 were pre-tax effect unrealized gains of$115 million on securities with an amortized cost of$3.1 billion and pre-tax effect unrealized losses of$9 million on securities with an amortized cost of$709 million . Information concerning the Company's fair valuations of investment securities is provided in notes 3 and 21 of Notes to Financial Statements. Each reporting period the Company reviews its available-for-sale investment securities for declines in value that might be indicative of credit-related losses through an analysis of the creditworthiness of the issuer or the credit performance of the underlying collateral supporting the bond. If the Company does not expect to recover the entire amortized cost basis of a debt security a credit loss is recognized in the consolidated statement of income. A loss is also recognized if the Company intends to sell a bond or it more likely than not will be required to sell a bond before recovery of the amortized cost basis. As ofDecember 31, 2021 , based on a review of each of the securities in the available-for-sale investment securities portfolio, the Company concluded that it expected to realize the amortized cost basis of each security. As ofDecember 31, 2021 , the Company did not intend to sell nor is it anticipated that it would be required to sell any securities for which fair value was less than the 108 -------------------------------------------------------------------------------- amortized cost basis of the security. The Company intends to continue to closely monitor the performance of its securities because changes in their underlying credit performance or other events could cause the amortized cost basis of those securities to become uncollectable. OnJanuary 1, 2020 the Company adopted amended accounting guidance that requires investment securities held to maturity to be presented at their net carrying value that is expected to be collected over their contractual term. The Company estimated no material allowance for credit losses for its investment securities classified as held-to-maturity atDecember 31, 2021 andDecember 31, 2020 as the substantial majority of such investment securities were obligations backed by theU.S. government or its agencies. The Company assessed the potential for expected credit losses on privately issued mortgage-backed securities in the held-to-maturity portfolio by performing internal modeling to estimate bond-specific cash flows considering recent performance of the mortgage loan collateral and utilizing assumptions about future defaults and loss severity. These bond-specific cash flows also reflect the placement of the bond in the overall securitization structure and the remaining subordination levels. In total, atDecember 31, 2021 and 2020, the Company had in its held-to-maturity portfolio privately issued mortgage-backed securities with an amortized cost basis of$62 million and$77 million , respectively, and a fair value of$57 million and$70 million , respectively. AtDecember 31, 2021 , 81% of the mortgage-backed securities were in the most senior tranche of the securitization structure. The mortgage-backed securities are generally collateralized by residential and small-balance commercial real estate loans originated between 2004 and 2008. After considering the repayment structure and estimated future collateral cash flows of each individual bond, the Company has concluded that as ofDecember 31, 2021 , it expected to recover the amortized cost basis of those privately issued mortgage-backed securities. Nevertheless, it is possible that adverse changes in the estimated future performance of mortgage loan collateral underlying such securities could impact the Company's conclusions. Adjustments to reflect the funded status of defined benefit pension and other postretirement plans, net of applicable tax effect, reduced accumulated other comprehensive income by$267 million , or$2.08 per common share, atDecember 31, 2021 ,$481 million , or$3.75 per common share, atDecember 31, 2020 and$342 million , or$2.62 per common share, atDecember 31, 2019 . Information about the funded status of the Company's pension and other postretirement benefit plans is included in note 13 of Notes to Financial Statements. OnJanuary 20, 2021 , M&T's Board of Directors authorized a stock repurchase plan to repurchase up to$800 million of shares of M&T's common stock subject to all applicable regulatory limitations. There were no repurchases pursuant to that authorization during 2021. Pursuant to previously approved capital plans and authorizations by M&T's Board of Directors, M&T repurchased 2,577,000 common shares for$374 million in 2020 and 8,257,000 common shares for$1.3 billion during 2019. During the fourth quarter of 2021, M&T's Board of Directors authorized an increase in the quarterly common stock dividend to$1.20 per common share from the previous rate of$1.10 per common share. During 2019, M&T's Board of Directors authorized an increase in the quarterly common stock dividend to$1.10 per common share in the fourth quarter from the previous rate of$1.00 per common share. Cash dividends declared on M&T's common stock totaled$584 million in 2021, compared with$569 million and$552 million in 2020 and 2019, respectively. Dividends per common share totaled$4.50 in 2021, compared with$4.40 and$4.10 in 2020 and 2019, respectively. Dividends of$73 million in 2021,$68 million in 2020 and$72 million in 2019 were declared on preferred stock in accordance with the terms of each series. 109 --------------------------------------------------------------------------------
M&T and its subsidiary banks are required to comply with applicable capital adequacy standards established by the federal banking agencies. Pursuant to those regulations, the minimum capital ratios are as follows:
• 4.5% Common Equity Tier 1 ("CET1") to risk-weighted assets (each as
defined in the capital regulations);
• 6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to
risk-weighted assets (each as defined in the capital regulations);
• 8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to
risk-weighted assets (each as defined in the capital regulations); and
• 4.0% Tier 1 capital to average consolidated assets as reported on
consolidated financial statements (known as the "leverage ratio"), as
defined in the capital regulations.
Capital regulations require buffers in addition to the minimum risk-based
capital ratios noted above. M&T is subject to a stress capital buffer
requirement that is determined through the Federal Reserve's supervisory stress
tests and M&T's bank subsidiaries are subject to a capital conservation buffer
requirement. The buffer requirement for each entity is currently 2.5% of
risk-weighted assets and must be composed entirely of CET1. The federal bank
regulatory agencies have issued rules that allow banks and bank holding
companies to phase-in the impact of adopting the expected credit loss accounting
model on regulatory capital. Those rules allow banks and bank holding companies
to delay for two years the day one impact on retained earnings of adopting the
expected loss accounting standard and 25% of the cumulative change in the
reported allowance for credit losses subsequent to the initial adoption,
followed by a three-year transition period. M&T and its subsidiary banks adopted
these rules and the impact is reflected in regulatory capital ratios as of
December 31, 2021 . The regulatory capital amounts and ratios of M&T and its bank
subsidiaries as of December 31, 2021 are presented in note 24 of Notes to
Financial Statements. A detailed discussion of the regulatory capital rules is
included in Part I, Item 1 of this Form 10-K under the heading "Capital
Requirements."
The Company is subject to the comprehensive regulatory framework applicable to
bank and financial holding companies and their subsidiaries, which includes
examinations by a number of regulators. Regulation of financial institutions
such as M&T and its subsidiaries is intended primarily for the protection of
depositors, the Deposit Insurance Fund of the FDIC and the banking and financial
system as a whole, and generally is not intended for the protection of
shareholders, investors or creditors other than insured depositors. Changes in
laws, regulations and regulatory policies applicable to the Company's operations
can increase or decrease the cost of doing business, limit or expand permissible
activities or affect the competitive environment in which the Company operates,
all of which could have a material effect on the business, financial condition
or results of operations of the Company and in M&T's ability to pay dividends.
For additional information concerning this comprehensive regulatory framework,
refer to Part I, Item 1 of this Form 10-K.
Fourth Quarter Results
Net income in the fourth quarter of 2021 was $458 million , compared with $471
million in the year-earlier quarter. Diluted and basic earnings per common share
were each $3.37 in the final 2021 quarter, compared with diluted and basic
earnings per common share of $3.52 in the corresponding quarter of 2020. The
annualized rates of return on average assets and average common shareholders'
equity for the final quarter of 2021 were 1.15% and 10.91%, respectively,
compared with 1.30% and 12.07%, respectively, in the corresponding quarter of
2020.
Net operating income during 2021's fourth quarter was $475 million , compared
with $473 million in the year-earlier quarter. Diluted net operating earnings
per common share were $3.50 and $3.54 in the fourth quarters of 2021 and 2020,
respectively. The annualized net operating returns on
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average tangible assets and average tangible common equity in the final three
months of 2021 were 1.23% and 15.98%, respectively, compared with 1.35% and
17.53%, respectively, in the similar 2020 period. Reconciliations of GAAP
results with non-GAAP results for the quarterly periods of 2021 and 2020 are
provided in table 24.
Taxable-equivalent net interest income aggregated $937 million in the final
quarter of 2021, compared with $993 million in the year-earlier period. That
decline was attributable to lower average outstanding loan balances and a
reduced net interest margin. Reflecting the impact of persistently low market
interest rates and increased holdings of low-yielding balances at the FRB of New
York , the net interest margin narrowed 42 basis points to 2.58% in the fourth
quarter of 2021 from 3.00% in the final three months of 2020. Average earning
assets were $131.9 billion in the final quarter of 2020 and $144.4 billion in
2021's fourth quarter. The $12.5 billion increase in average earning assets was
driven by a $22.1 billion rise in low-yielding deposit balances at the FRB of
New York and other banks, partially offset by a $5.4 billion reduction in
average outstanding loans. Average balances of commercial loans and leases were
$22.3 billion in the recent quarter, down $5.4 billion or 19% from $27.7 billion
in the fourth quarter of 2020. That decline was largely the result of decreased
average balances of PPP loans, due to loan forgiveness by the Small Business
Administration , lower dealer floor plan balances, reflecting automobile
production and inventory issues experienced by the industry, and subdued loan
demand by commercial customers, in general. PPP loans averaged $1.6 billion in
2021's final quarter, compared with $6.2 billion in the year-earlier quarter.
Average commercial real estate loan balances aggregated $36.7 billion in the
final quarter of 2021, down $990 million or 3% from $37.7 billion in the
year-earlier quarter. Included in those totals were average balances of loans
held for sale of $535 million in the final three months of 2021, compared with
$307 million in the corresponding period of 2020. Average residential real
estate loan balances decreased $471 million to $16.3 billion in the fourth
quarter of 2021 from $16.8 billion in the year-earlier quarter, reflecting
ongoing repayments of loans obtained in the acquisition of Hudson City. Also
contributing to the decrease were loans held for sale that averaged $485 million
and $645 million in the final quarters of 2021 and 2020, respectively. Consumer
loans averaged $17.9 billion in the last three months of 2021, $1.4 billion or
9% higher than in the year-earlier quarter. That increase resulted from a rise
in average balances of recreational finance loans of $1.0 billion and automobile
loans of $624 million . The net interest spread narrowed in the fourth quarter of
2021 to 2.52%, down 38 basis points from 2.90% in the corresponding quarter of
2020. The yield on earning assets in the last three months of 2021 was 2.64%,
down 51 basis points from the year-earlier quarter. The rate paid on
interest-bearing liabilities in the 2021's final quarter was .12%, down 13 basis
points from .25% in the similar quarter of 2020. The contribution of net
interest-free funds to the Company's net interest margin was .06% and .10% in
the fourth quarters of 2021 and 2020, respectively. As a result, the Company's
net interest margin narrowed to 2.58% in the fourth quarter of 2021 from 3.00%
in the year-earlier period.
A recapture of provision for credit losses of $15 million was recorded for the
quarter ended December 31, 2021 , compared with a $75 million provision for
credit losses in the year-earlier period. Net loan charge-offs were $31 million
in the last three months of 2021, representing an annualized .13% of average
loans and leases outstanding, compared with $97 million or .39% during the
similar 2020 period. Net charge-offs in the fourth quarters of 2021 and 2020
included: net charge-offs of commercial loans of $25 million in 2021 and $67
million in 2020; net recoveries of commercial real estate loans of $7 million in
2021 compared with net charge-offs of $12 million in 2020; net charge-offs of
residential real estate loans of $2 million in 2021 and net recoveries of $1
million in 2020; and net charge-offs of consumer loans of $11 million in 2021
and $19 million in 2020.
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Other income rose to $579 million in the fourth quarter of 2021 from $551
million in the similar 2020 period. The increased level in the recent quarter
resulted largely from higher trust income, service charges on deposit accounts
and brokerage services income.
Other expense totaled $928 million during the recent quarter, compared with $845
million in the final quarter of 2020. Included in such amounts are expenses
considered to be "nonoperating" in nature consisting of amortization of core
deposit and other intangible assets of $2 million and $3 million during the
quarters ended December 31, 2021 and 2020, respectively and merger-related
expenses of $21 million in fourth quarter of 2021. No merger-related expenses
were incurred in the year-earlier quarter. Exclusive of those nonoperating
expenses, noninterest operating expenses were $904 million in the fourth quarter
of 2021 and $842 million in the corresponding 2020 quarter. Factors contributing
to the higher level of expenses in the recent quarter as compared with the
fourth quarter of 2020 were predominantly related to increased costs for
salaries and employee benefits (including higher incentive compensation),
outside data processing and software, and professional services. The Company's
efficiency ratio during the final quarters of 2021 and 2020 was 59.7% and 54.6%,
respectively. Table 24 includes a reconciliation of other expense to noninterest
operating expense and the calculation of the efficiency ratio for each of the
quarters of 2021 and 2020.
Segment Information
In accordance with GAAP, the Company's reportable segments have been determined
based upon its internal profitability reporting system, which is organized by
strategic business unit. Certain strategic business units have been combined for
segment information reporting purposes where the nature of the products and
services, the type of customer, and the distribution of those products and
services are similar. The reportable segments are Business Banking, Commercial
Banking, Commercial Real Estate , Discretionary Portfolio, Residential Mortgage
Banking and Retail Banking.
The financial information of the Company's segments was compiled utilizing the
accounting policies described in note 23 of Notes to Financial Statements. The
management accounting policies and processes utilized in compiling segment
financial information are highly subjective and, unlike financial accounting,
are not based on authoritative guidance similar to GAAP. As a result, reported
segments and the financial information of the reported segments are not
necessarily comparable with similar information reported by other financial
institutions. Furthermore, changes in management structure or allocation
methodologies and procedures may result in changes in reported segment financial
data. Financial information about the Company's segments is presented in note 23
of Notes to Financial Statements.
The Business Banking segment provides a wide range of services to small
businesses and professionals within markets served by the Company through the
Company's branch network, business banking centers and other delivery channels
such as telephone banking, Internet banking and automated teller machines.
Services and products offered by this segment include various business loans and
leases, including loans guaranteed by the Small Business Administration ,
business credit cards, deposit products, and financial services such as cash
management, payroll and direct deposit, merchant credit card and letters of
credit. Net income of the Business Banking segment aggregated $213 million in
2021, up 34% from $159 million in 2020. Higher net interest income of $56
million , a $15 million decline in the provision for credit losses and higher
merchant discount and credit card fees of $12 million in 2021 were partially
offset by higher personnel-related costs of $11 million . The higher net interest
income reflected a 127 basis point widening of the net interest margin on loans
and higher average deposit balances of $3.3 billion , partially offset by a 57
basis point narrowing of the net interest margin on deposits. The widening
margin on loans resulted from a higher level of PPP fee income resulting from
the forgiveness of loans by the SBA. The increase in average deposits resulted
from a continued desire by the customers of the Business Banking segment
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to maintain liquidity during the pandemic and amid the low interest rate
environment. This segment recorded net income of $168 million in 2019. The 6%
decline in 2020 as compared with 2019 resulted from a $10 million decrease in
service charges on deposit accounts, a $9 million increase in the provision for
credit losses, due largely to higher net charge-offs, and higher
personnel-related costs of $7 million . Those unfavorable factors were partially
offset by an $11 million increase in net interest income. The growth in net
interest income reflected an increase in average outstanding deposit and loan
balances of $3.0 billion and $2.4 billion , respectively, partially offset by a
narrowing of the net interest margin on deposits and loans of 89 basis points
and 17 basis points, respectively.
The Commercial Banking segment provides a wide range of credit products and
banking services for middle-market and large commercial customers, mainly within
the markets served by the Company. Services provided by this segment include
commercial lending and leasing, letters of credit, deposit products, and cash
management services. The Commercial Banking segment recorded net income of $494
million in 2021, compared with $508 million in 2020. The most significant
factors contributing to the 3% decline in net income from 2020 to 2021 included
a higher provision for credit losses of $28 million , an increase of $13 million
in centrally allocated costs associated with data processing, risk management
and other support services provided to the Commercial Banking segment, and a $10
million decrease in net interest income. The impact of those items on net income
was partially offset by higher letter of credit and other credit-related fees of
$22 million and higher merchant discount and credit card fees of $13 million .
The decrease in net interest income reflected lower average outstanding loan
balances of $1.8 billion and a 52 basis point narrowing of the net interest
margin on deposits offset, in part, by a widening of the net interest margin on
loans of 22 basis points and higher average deposit balances of $5.4 billion .
Net income for the Commercial Banking segment totaled $520 million in 2019. The
decline in net income in 2020 from 2019 was predominantly driven by a $48
million increase in the provision for credit losses, due to higher loan balances
and net charge-offs, and a $9 million write-down of equipment in 2020 that was
leased to customers. Offsetting the noted unfavorable factors were a $35 million
increase in net interest income and an $11 million decrease in
centrally-allocated costs associated with data processing, risk management and
other support services provided to the Commercial Banking segment. The increased
net interest income reflected higher average outstanding deposit and loan
balances of $6.2 billion and $2.2 billion , respectively, partially offset by an
84 basis point narrowing of the net interest margin on deposits.
The Commercial Real Estate segment provides credit and deposit services to its
customers. Commercial real estate loans may be secured by apartment/multifamily
buildings, office, retail and industrial space or other types of collateral.
Activities of this segment also include the origination, sales and servicing of
commercial real estate loans through the Fannie Mae DUS program and other
programs. Commercial real estate loans held for sale are included in this
segment. Net income for the Commercial Real Estate segment was $372 million in
2021, compared with $382 million in 2020. The $10 million , or 2%, decrease was
primarily attributable to a $30 million decline in net interest income,
reflecting a 58 basis point narrowing of the net interest margin on deposits and
lower average loan balances of $237 million . Additionally, lower trading account
and foreign exchange gains of $12 million , resulting from decreased activity
related to interest rate swap agreements executed on behalf of commercial
customers, a $7 million increase in the amortization of capitalized commercial
mortgage servicing rights, a $7 million increase in centrally-allocated costs
associated with data processing, risk management and other support services
provided to the Commercial Real Estate segment and higher FDIC assessments and
salaries and employee benefits of $6 million each were partially offset by a $40
million decrease in the provision for credit losses and a $17 million increase
in commercial mortgage servicing income. Net income for this segment decreased
21% in 2020 from $486 million in 2019. That decline resulted from a $106 million
rise in the provision for
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credit losses, due to higher loan balances and net charge-offs, a decline in net
interest income of $19 million , higher salaries and employee benefits expense of
$11 million , largely reflecting increased incentive compensation costs, and
lower trading account and foreign exchange gains of $9 million , resulting from
decreased activity related to interest rate swap agreements executed on behalf
of customers. Partially offsetting those unfavorable factors was a $10 million
rise in commercial mortgage banking revenues, due in part to wider margins on
loans originated for sale. The lower net interest income was largely
attributable to a narrowing of the net interest margin on deposits and loans of
76 basis points and 14 basis points, respectively, partially offset by higher
average outstanding loan balances of $1.7 billion .
The Discretionary Portfolio segment includes investment and trading account
securities, residential real estate loans and other assets, short-term and
long-term borrowed funds, brokered deposits, and, through June 2021 , Cayman
Islands office deposits. This segment also provides foreign exchange services to
customers. Net income of the Discretionary Portfolio segment aggregated $289
million in 2021 and $327 million in 2020. The 12% decline in the 2021's net
income as compared with 2020 reflects a $21 million increase in intersegment
fees related to the transfer of residential mortgage loans to the Discretionary
Portfolio segment from the Residential Mortgage Banking segment, a $12 million
decrease in the value of marketable equity securities, and an $8 million
increase in centrally-allocated costs associated with data processing, risk
management and other support services provided to the Discretionary Portfolio
segment. The Discretionary Portfolio segment recorded net income $144 million in
2019. The significant increase to $327 million in 2020 was driven by a $277
million rise in net interest income, reflecting additional income from interest
rate swap agreements utilized as part of the Company's management of interest
rate risk. Partially offsetting that factor were valuation losses associated
with marketable equity securities (compared with gains in the 2019 period)
representing a change of $25 million .
The Residential Mortgage Banking segment originates and services residential
mortgage loans and sells substantially all of those loans in the secondary
market to investors or to the Discretionary Portfolio segment. The Company
periodically purchases the rights to service loans and also sub-services
residential real estate loans for others. Residential real estate loans held for
sale are included in this segment. Income for the Residential Mortgage Banking
segment increased 29% to $173 million in 2021 from $134 million in 2020. That
year-over-year increase was attributable to higher net interest income of $40
million, reflecting higher average loan balances of $1.3 billion, and increased
revenues associated with servicing and sub-servicing residential real estate
loans (including intersegment revenues) of $9 million. The Residential Mortgage
Banking segment's net income rose 85% to $134 million in 2020 from $72 million
in 2019. That improvement resulted from a $131 million increase in revenues
associated with mortgage origination and sales activities (including
intersegment revenues) and higher net interest income of $33 million, reflecting
higher average outstanding balances of deposits and loans of $1.1 billion and
$1.0 billion, respectively. Offsetting those favorable factors were higher
servicing-related costs (including intersegment costs and changes to the
valuation allowance for capitalized residential mortgage servicing rights) of
$37 million, higher personnel-related costs of $22 million, reflecting increased
headcount and higher commissions, lower revenues of $17 million associated with
servicing and sub-servicing residential real estate loans (including
intersegment revenues), and a $14 million rise in centrally-allocated costs
associated with data processing, risk management and other support services
provided to the Residential Mortgage Banking segment.
The Retail Banking segment offers a variety of services to consumers through
several delivery channels which include branch offices, automated teller
machines, telephone banking and Internet banking. The Company has branch offices
in New York State , Maryland , New Jersey , Pennsylvania , Delaware , Connecticut ,
Virginia , West Virginia and the District of Columbia . Credit services offered by
this segment include consumer installment loans, automobile and recreational
finance loans
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(originated both directly and indirectly through dealers), home equity loans and
lines of credit, and credit cards. The segment also offers to its customers
deposit products, including demand, savings and time accounts, investment
products, including mutual funds and annuities and other services. Retail
Banking segment net income aggregated $341 million in 2021 compared with $365
million in 2020. Factors contributing to the decline in net income in 2021
included a decrease of $78 million in net interest income and increased
centrally-allocated costs, largely associated with data processing, risk
management and other support services provided to the Retail Banking segment.
The net interest income decline reflected a narrowing of the net interest margin
on deposits of 49 basis points, partially offset by higher average outstanding
balances of deposits and loans of $5.1 billion and $1.5 billion, respectively.
The unfavorable factors were partially offset by a $53 million decrease in the
provision for credit losses, a $22 million decrease in personnel-related costs
(reflecting lower staffing levels), a $20 million rise in service charges on
deposit accounts and an $8 million increase in merchant discount and credit card
fees. Net income for the Retail Banking segment was $365 million in 2020, down
31% from $528 million in 2019. That decrease was predominantly attributable to a
$185 million decline in net interest income, reflecting a 74 basis point
narrowing of the net interest margin on deposits, partially offset by higher
average outstanding deposit and loan balances of $2.4 billion and $1.4 billion,
respectively, and a $51 million decrease in consumer service charges on deposit
accounts. The lower consumer service charges reflect fee waivers and lower
transaction activity as a result of the COVID-19 pandemic. Those unfavorable
factors were offset, in part, by a $17 million decrease in advertising and
marketing expenses due to reduced activities related to the pandemic and a $14
million decline in the provision for credit losses.
The "All Other" category reflects other activities of the Company that are not
directly attributable to the reported segments. Reflected in this category are
the amortization of core deposit and other intangible assets from the
acquisitions of financial institutions, distributions from BLG, merger-related
expenses related to acquisitions (when incurred) and the net impact of the
Company's allocation methodologies for internal transfers for funding charges
and credits associated with the earning assets and interest-bearing liabilities
of the Company's reportable segments and the provision for credit losses. The
"All Other" category also includes trust income of the Company that reflects the
ICS and WAS business activities. The various components of the "All Other"
category resulted in a net loss of $24 million and $523 million in 2021 and
2020, respectively. As compared with 2020, the lower net loss in 2021 resulted
from a $795 million decrease in the provision for credit losses, the favorable
impact from the Company's allocation methodologies for internal transfers for
funding charges and credits associated with earning assets and interest-bearing
liabilities of the Company's reportable segments, and increased trust income.
Those favorable factors were partially offset by higher professional services
expenses and increased personnel-related costs. The net loss in 2020 as compared
with 2019's net income of $11 million resulted from a $476 million increase in
the provision for credit losses, the unfavorable impact from the Company's
allocation methodologies for internal transfers for funding charges and credits
associated with earning assets and interest-bearing liabilities of the Company's
reportable segments, and a $29 million increase in outside data processing and
software costs. Those unfavorable factors were partially offset by a $112
million decrease in professional and other outside services, a $49 million
decrease in accruals for legal matters, the impact of a $48 million charge from
the sale of an affiliated asset manager during 2019, higher trust income of $29
million, and increased income from BLG of $16 million.
Recent Accounting Developments
A discussion of recent accounting developments is included in note 27 of Notes
to Financial Statements.
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Forward-Looking Statements
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this annual report contain forward-looking
statements, within the meaning of the Private Securities Litigation Reform Act
of 1995. Any statement that does not describe historical or current facts is a
forward-looking statement, including statements that are based on current
expectations, estimates and projections about the Company's business,
management's beliefs and assumptions made by management.
Statements regarding the potential effects of the COVID-19 pandemic on the
Company's business, financial condition, liquidity and results of operations may
constitute forward-looking statements and are subject to the risk that the
actual effects may differ, possibly materially, from what is reflected in those
forward-looking statements due to factors and future developments that are
uncertain, unpredictable and in many cases beyond the Company's control,
including the scope and duration of the pandemic, actions taken by governmental
authorities in response to the pandemic, and the direct and indirect impact of
the pandemic on customers, clients, third parties and the Company.
Statements regarding the Company's expectations or predictions regarding the
proposed transaction between M&T and People's United also are forward-looking
statements, including statements regarding the expected timing, completion and
effects of the proposed transaction as well as M&T's and People's United's
expected financial results, prospects, targets, goals and outlook. M&T provides
further detail regarding the risks and uncertainties related to the proposed
transaction in its public filings, including in the "Risk Factors" section of
this annual report.
Forward-looking statements are typically identified by words such as "believe,"
"expect," "anticipate," "intend," "target," "estimate," "continue," "positions,"
"prospects" or "potential," by future conditional verbs such as "will," "would,"
"should," "could," or "may," or by variations of such words or by similar
expressions. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions ("Future Factors") which
are difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in such forward-looking
statements.
Future factors include risks, predictions and uncertainties relating to: the
proposed transaction between M&T and People's United, including the factors that
are described in the "Risk Factors" section of this annual report; the impact of
the COVID-19 pandemic; changes in interest rates, spreads on earning assets and
interest-bearing liabilities, and interest rate sensitivity; prepayment speeds,
loan originations, credit losses and market values on loans, collateral securing
loans, and other assets; sources of liquidity; common shares outstanding; common
stock price volatility; fair value of and number of stock-based compensation
awards to be issued in future periods; the impact of changes in market values on
trust-related revenues; legislation and regulations affecting the financial
services industry, and/or M&T and its subsidiaries individually or collectively,
including tax policy; regulatory supervision and oversight, including monetary
policy and capital requirements; changes in accounting policies or procedures as
may be required by the Financial Accounting Standards Board , regulatory agencies
or legislation; increasing price, product and service competition by
competitors, including new entrants; rapid technological developments and
changes; the ability to continue to introduce competitive new products and
services on a timely, cost-effective basis; the mix of products and services;
containing costs and expenses; governmental and public policy changes;
protection and validity of intellectual property rights; reliance on large
customers; technological, implementation and cost/financial risks in large,
multi-year contracts; the outcome of pending and future litigation and
governmental proceedings, including tax-related examinations and other matters;
continued availability of financing; financial resources in the amounts, at the
times and on the terms required to support M&T and its subsidiaries' future
businesses; and material differences in the actual financial results of merger,
acquisition and investment activities compared with M&T's
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initial expectations, including the full realization of anticipated cost savings
and revenue enhancements.
These are representative of the Future Factors that could affect the outcome of
the forward-looking statements. In addition, such statements could be affected
by general industry and market conditions and growth rates, general economic and
political conditions, either nationally or in the states in which M&T and its
subsidiaries do business, including interest rate and currency exchange rate
fluctuations, changes and trends in the securities markets, and other Future
Factors. Forward-looking statements speak only as of the date they are made and
the Company assumes no duty to update forward-looking statements.
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Table 23
QUARTERLY TRENDS
2021 Quarters 2020 Quarters
Fourth Third Second First Fourth Third Second First
Earnings and dividends
Amounts in thousands, except per share
Interest income (taxable-equivalent
basis) $ 962,081 996,649 974,090 1,020,695 1,042,862 1,005,180 1,036,476 1,125,482
Interest expense 24,725 25,696 28,018 35,567 49,610 58,066 75,105 143,614
Net interest income 937,356 970,953 946,072 985,128 993,252 947,114 961,371 981,868
Less: provision for credit losses (15,000 ) (20,000 ) (15,000 ) (25,000 ) 75,000 150,000 325,000 250,000
Other income 578,637 569,126 513,633 505,598 551,250 520,561 487,273 529,360
Less: other expense 927,500 899,334 865,345 919,444 845,008 826,774 807,042 906,416
Income before income taxes 603,493 660,745 609,360 596,282 624,494 490,901 316,602 354,812
Applicable income taxes 141,962 161,582 147,559 145,300 149,382 114,746 71,314 80,927
Taxable-equivalent adjustment 3,563 3,703 3,732 3,733 3,972 4,019 4,234 5,063
Net income $ 457,968 495,460 458,069 447,249 471,140 372,136 241,054 268,822
Net income available to common
shareholders-diluted $ 434,171 475,961 438,759 428,093 451,869 353,400 223,099 250,701
Per common share data
Basic earnings $ 3.37 3.70 3.41 3.33 3.52 2.75 1.74 1.93
Diluted earnings 3.37 3.69 3.41 3.33 3.52 2.75 1.74 1.93
Cash dividends $ 1.20 1.10 1.10 1.10 1.10 1.10 1.10 1.10
Average common shares outstanding
Basic 128,698 128,689 128,671 128,537 128,303 128,285 128,275 129,696
Diluted 128,888 128,844 128,842 128,669 128,379 128,355 128,333 129,755
Performance ratios, annualized
Return on
Average assets 1.15 % 1.28 % 1.22 % 1.22 % 1.30 % 1.06 % .71 %
.90 %
Average common shareholders' equity 10.91 % 12.16 % 11.55 % 11.57 % 12.07 % 9.53 % 6.13 %
7.00 %
Net interest margin on average earning
assets
(taxable-equivalent basis) 2.58 % 2.74 % 2.77 % 2.97 % 3.00 % 2.95 % 3.13 %
3.65 %
Nonaccrual loans to total loans and
leases, net of
unearned discount 2.22 % 2.40 % 2.31 % 1.97 % 1.92 % 1.26 % 1.18 %
1.13 %
Net operating (tangible) results (a)
Net operating income (in thousands) $ 475,477 504,030 462,959 457,372 473,453 375,029 243,958 271,705
Diluted net operating income per common share $ 3.50 3.76 3.45 3.41 3.54 2.77 1.76 1.95 Annualized return on Average tangible assets 1.23 % 1.34 % 1.27 % 1.29 % 1.35 % 1.10 % .74 % .94 % Average tangible common shareholders' equity 15.98 % 17.54 % 16.68 % 17.05 % 17.53 % 13.94 % 9.04 % 10.39 % Efficiency ratio (b) 59.7 % 57.7 % 58.4 % 60.3 % 54.6 % 56.2 % 55.7 % 58.9 % Balance sheet data In millions, except per share Average balances Total assets (c) $ 157,722 154,037 150,641 148,157 144,563 140,181 136,446 120,585 Total tangible assets (c) 153,125 149,439 146,041 143,554 139,958 135,574 131,836 115,972 Earning assets 144,420 140,420 136,951 134,355 131,916 127,689 123,492 108,226 Investment securities 6,804 6,019 6,211 6,605 7,195 7,876 8,500 9,102 Loans and leases, net of unearned discount 93,250 95,314 98,610 99,356 98,666 98,210 97,797 91,706 Deposits 134,444 131,255 128,413 125,733 120,976 116,306 111,795 96,166 Common shareholders' equity (c) 15,863 15,614
15,321 15,077 14,963 14,823 14,703
14,470
Tangible common shareholders' equity (c) 11,266 11,016 10,721 10,474 10,358 10,216 10,093 9,857 At end of quarter Total assets (c) $ 155,107 151,901 150,623 150,481 142,601 138,627 139,537 124,578 Total tangible assets (c) 150,511 147,304 146,023 145,879 137,998 134,021 134,928 119,966 Earning assets 141,990 138,257 137,171 137,367 129,295 126,418 127,149 112,046 Investment securities 7,156 6,448 6,143 6,611 7,046 7,723 8,454 8,957 Loans and leases, net of unearned discount 92,912 93,583 97,113 99,299 98,536 98,447 97,758 94,142 Deposits 131,543 128,701 128,269 128,476 119,806 115,163 114,968 100,183 Common shareholders' equity (c) 16,153 15,779
15,470 15,197 14,937 14,851 14,695
14,566
Tangible common shareholders' equity (c) 11,557 11,182 10,870 10,595 10,334 10,245 10,086 9,954 Equity per common share 125.51 122.60 120.22 118.12 116.39 115.75 114.54 113.54 Tangible equity per common share 89.80 86.88 84.47 82.35 80.52 79.85 78.62 77.60
(a) Excludes amortization and balances related to goodwill and core deposit and
other intangible assets and merger-related expenses which, except in the
calculation of the efficiency ratio, are net of applicable income tax
effects. A reconciliation of net income and net operating income appears in
Table 24.
(b) Excludes impact of merger-related expenses and net securities transactions.
(c) The difference between total assets and total tangible assets, and common
shareholders' equity and tangible common shareholders' equity, represents
goodwill, core deposit and other intangible assets, net of applicable
deferred tax balances. A reconciliation of such balances appears in Table 24.
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Table 24
RECONCILIATION OF QUARTERLY GAAP TO NON-GAAP MEASURES
2021 Quarters 2020 Quarters
Fourth Third Second First Fourth Third Second First
Income statement data (in
thousands, except per share)
Net income
Net income $ 457,968 495,460 458,069 447,249 471,140 372,136 241,054 268,822
Amortization of core deposit
and other
intangible assets (a) 1,447 2,028 2,023 2,034 2,313 2,893 2,904 2,883
Merger-related expenses (a) 16,062 6,542 2,867 8,089 - - - -
Net operating income $ 475,477 504,030 462,959 457,372 473,453 375,029 243,958 271,705
Earnings per common share
Diluted earnings per common
share $ 3.37 3.69 3.41 3.33 3.52 2.75 1.74 1.93
Amortization of core deposit
and other
intangible assets (a) .01 .02 .02 .02 .02 .02 .02 .02
Merger-related expenses (a) .12 .05 .02 .06 - - - -
Diluted net operating earnings
per
common share $ 3.50 3.76 3.45 3.41 3.54 2.77 1.76 1.95
Other expense
Other expense $ 927,500 899,334 865,345 919,444 845,008 826,774 807,042 906,416
Amortization of core deposit
and other
intangible assets (1,954 ) (2,738 ) (2,737 ) (2,738 ) (3,129 ) (3,914 ) (3,913 ) (3,913 )
Merger-related expenses (21,190 ) (8,826 ) (3,893 ) (9,951 ) - - - -Noninterest operating expense $ 904,356 887,770 858,715
906,755 841,879 822,860 803,129 902,503
Merger-related expenses
Salaries and employee benefits $ 112 60 4 - - - - -
Equipment and net occupancy 340 1 - - - - - -
Outside data processing and
software 250 625 244 - - - - -
Advertising and marketing 337 505 24 - - - - -
Printing, postage and supplies 186 730 2,049 - - - - -
Other costs of operations 19,965 6,905 1,572 9,951 - - - -
Other expense $ 21,190 8,826 3,893 9,951 - - - -
Efficiency ratio
Noninterest operating expense
(numerator) $ 904,356 887,770 858,715 906,755 841,879 822,860 803,129 902,503
Taxable-equivalent net interest
income $ 937,356 970,953 946,072 985,128 993,252 947,114 961,371 981,868
Other income 578,637 569,126 513,633 505,598 551,250 520,561 487,273 529,360
Less: Gain (loss) on bank
investment
securities 1,426 291 (10,655 ) (12,282 ) 1,619 2,773 6,969 (20,782 )
Denominator $ 1,514,567 1,539,788 1,470,360 1,503,008 1,542,883 1,464,902 1,441,675 1,532,010
Efficiency ratio 59.7 % 57.7 % 58.4 % 60.3 % 54.6 % 56.2 % 55.7 % 58.9 %
Balance sheet data (in
millions)
Average assets
Average assets $ 157,722 154,037 150,641 148,157 144,563 140,181 136,446 120,585
Goodwill (4,593 ) (4,593 ) (4,593 ) (4,593 ) (4,593 ) (4,593 ) (4,593 ) (4,593 )
Core deposit and other
intangible assets (5 ) (7 ) (10 ) (13 ) (16 ) (19 ) (23 ) (27 )
Deferred taxes 1 2 3 3 4 5 6 7
Average tangible assets $ 153,125 149,439 146,041 143,554 139,958 135,574 131,836 115,972
Average common equity
Average total equity $ 17,613 17,109 16,571 16,327 16,213 16,073 15,953 15,720
Preferred stock (1,750 ) (1,495 ) (1,250 ) (1,250 ) (1,250 ) (1,250 ) (1,250 ) (1,250 )
Average common equity 15,863 15,614 15,321 15,077 14,963 14,823 14,703 14,470
Goodwill (4,593 ) (4,593 ) (4,593 ) (4,593 ) (4,593 ) (4,593 ) (4,593 ) (4,593 )
Core deposit and other
intangible assets (5 ) (7 ) (10 ) (13 ) (16 ) (19 ) (23 ) (27 )
Deferred taxes 1 2 3 3 4 5 6 7Average tangible common equity $ 11,266 11,016 10,721
10,474 10,358 10,216 10,093 9,857
At end of quarter
Total assets
Total assets $ 155,107 151,901 150,623 150,481 142,601 138,627 139,537 124,578
Goodwill (4,593 ) (4,593 ) (4,593 ) (4,593 ) (4,593 ) (4,593 ) (4,593 ) (4,593 )
Core deposit and other
intangible assets (4 ) (6 ) (9 ) (12 ) (14 ) (17 ) (21 ) (25 )
Deferred taxes 1 2 2 3 4 4 5 6
Total tangible assets $ 150,511 147,304 146,023 145,879 137,998 134,021 134,928 119,966
Total common equity
Total equity $ 17,903 17,529 16,720 16,447 16,187 16,101 15,945 15,816
Preferred stock (1,750 ) (1,750 ) (1,250 ) (1,250 ) (1,250 ) (1,250 ) (1,250 ) (1,250 )
Common equity 16,153 15,779 15,470 15,197 14,937 14,851 14,695 14,566
Goodwill (4,593 ) (4,593 ) (4,593 ) (4,593 ) (4,593 ) (4,593 ) (4,593 ) (4,593 )
Core deposit and other
intangible assets (4 ) (6 ) (9 ) (12 ) (14 ) (17 ) (21 ) (25 )
Deferred taxes 1 2 2 3 4 4 5 6
Total tangible common equity $ 11,557 11,182 10,870 10,595 10,334 10,245 10,086 9,954
(a) After any related tax effect.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Incorporated by reference to the discussion contained in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," under the captions "Liquidity, Market Risk, and Interest Rate Sensitivity" (including Table 21) and "Capital." Item 8. Financial Statements and Supplementary Data.
Financial Statements and Supplementary Data consist of the financial statements as indexed and presented below and Table 23 "Quarterly Trends" presented in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Index to Financial Statements and Financial Statement Schedules
Report on Internal Control Over Financial Reporting
121
Report of Independent Registered Public Accounting Firm
122
Consolidated Balance Sheet - December 31, 2021 and 2020
125
Consolidated Statement of Income - Years ended December 31, 2021, 2020 and 2019
126
Consolidated Statement of Comprehensive Income - Years ended December 31, 2021, 2020 and 2019
127
Consolidated Statement of Cash Flows - Years ended December 31, 2021, 2020 and 2019
128
Consolidated Statement of Changes in Shareholders' Equity - Years ended December 31, 2021, 2020 and 2019
129
Notes to Financial Statements 130
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Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting atM&T Bank Corporation and subsidiaries ("the Company"). Management has assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2021 based on criteria described in "Internal Control - Integrated Framework (2013)" issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, management concluded that the Company maintained effective internal control over financial reporting as of December 31, 2021. The consolidated financial statements of the Company have been audited byPricewaterhouseCoopers LLP , an independent registered public accounting firm, that was engaged to express an opinion as to the fairness of presentation of such financial statements.PricewaterhouseCoopers LLP was also engaged to assess the effectiveness of the Company's internal control over financial reporting. The report ofPricewaterhouseCoopers LLP follows this report.M&T BANK CORPORATION [[Image Removed]]René F. Jones Chairman of the Board and Chief Executive Officer [[Image Removed]]Darren J. King Executive Vice President and Chief Financial Officer 121
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders ofM&T Bank Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets ofM&T Bank Corporation and its subsidiaries (the "Company") as of December 31, 2021 and 2020, and the related consolidated statements of income, of comprehensive income, of changes in shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted inthe United States of America . Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for the allowance for credit losses as of January 1, 2020. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management's Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on the Company's consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with thePublic Company Accounting Oversight Board (United States ) (PCAOB) and are required to be independent with respect to the Company in accordance with theU.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
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management, as well as evaluating the overall presentation of the consolidated
financial statements. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses - Adjustments to model forecasts
As described in Notes 1 and 5 to the consolidated financial statements, the
Company's allowance for credit losses of $1.5 billion reflects management's
expected credit losses in the loan and lease portfolio of $92.9 billion as of
December 31, 2021. For purposes of determining the level of the allowance for
credit losses, management evaluates the Company's loan and lease portfolio by
type. Management utilizes statistically developed models to project principal
balances over the remaining contractual lives of the loan portfolios and to
determine estimated credit losses through a reasonable and supportable forecast
period. Model forecasts may be adjusted for inherent limitations or biases that
have been identified through independent validation and back-testing of model
performance to actual realized results. Management also considered the impact of
portfolio concentrations, changes
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--------------------------------------------------------------------------------in underwriting practices, product expansions into new markets, imprecision in its economic forecasts, geopolitical conditions and other risk factors that might influence the loss estimation process.
The principal considerations for our determination that performing procedures relating to the allowance for credit losses, specifically certain adjustments to model forecasts, is a critical audit matter are (i) the significant judgment by management in determining the adjustments to model forecasts, which in turn led to a high degree of auditor judgment and subjectivity in performing procedures related to management's determination of these adjustments to model forecasts, (ii) the significant audit effort in evaluating the audit evidence related to these adjustments to model forecasts, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Company's allowance for credit losses estimation process, including controls relating to the allowance for credit losses estimation process for certain adjustments to model forecasts. These procedures also included, among others, testing management's process for determining the allowance for credit losses and these adjustments to model forecasts, including evaluating the appropriateness of management's methodology, testing the data utilized by management and evaluating the reasonableness of significant assumptions relating to these adjustments to model forecasts. Evaluating significant assumptions relating to these adjustments to model forecasts involved evaluating portfolio composition and concentration, as well as relevant market data. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of management's methodology and the reasonableness of significant assumptions relating to these adjustments to model forecasts. [[Image Removed]]Buffalo, New York February 16, 2022
We have served as the Company's auditor since 1984.
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--------------------------------------------------------------------------------M&T BANK CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
December 31,
(Dollars in thousands, except per share) 2021 2020
Assets
Cash and due from banks $ 1,337,577 $ 1,552,743 Interest-bearing deposits at banks 41,872,304
23,663,810
Trading account 468,031
1,068,581
Investment securities (includes pledged securities that can be sold or repledged of
$96,128 at December 31, 2021; $105,136 at December 31, 2020) Available for sale (cost: $3,849,347 at December 31, 2021;
$4,621,027 at December 31, 2020) 3,955,804
4,822,606
Held to maturity (fair value: $2,771,290 at December 31, 2021;
$1,842,281 at December 31, 2020) 2,734,674
1,748,989
Equity and other securities (cost: $461,516 at December 31, 2021;
$449,008 at December 31, 2020) 465,382 474,102 Total investment securities 7,155,860 7,045,697 Loans and leases 93,136,678 98,875,788 Unearned discount (224,226 ) (339,921 ) Loans and leases, net of unearned discount 92,912,452 98,535,867 Allowance for credit losses (1,469,226 ) (1,736,387 ) Loans and leases, net 91,443,226 96,799,480 Premises and equipment 1,144,765 1,161,558 Goodwill 4,593,112 4,593,112 Core deposit and other intangible assets 3,998 14,165 Accrued interest and other assets 7,088,287
6,701,959
Total assets $ 155,107,160 $ 142,601,105 Liabilities Noninterest-bearing deposits $ 60,131,480 $ 47,572,884 Savings and interest-checking deposits 68,603,966
67,680,840
Time deposits 2,807,963
3,899,910
Deposits at Cayman Islands office - 652,104 Total deposits 131,543,409 119,805,738 Short-term borrowings 47,046 59,482 Accrued interest and other liabilities 2,127,931 2,166,409 Long-term borrowings 3,485,369 4,382,193 Total liabilities 137,203,755 126,413,822 Shareholders' equity Preferred stock, $1.00 par, 1,000,000 shares authorized;
Issued and outstanding: Liquidation preference of $1,000 per share: 350,000
shares at December 31, 2021 and December 31, 2020; Liquidation preference of
$10,000 per share: 140,000 shares at December 31, 2021 and 90,000 shares at
December 31, 2020 1,750,000
1,250,000
Common stock, $.50 par, 250,000,000 shares authorized,
159,741,898 shares issued at December 31, 2021 and December 31, 2020
79,871 79,871
Common stock issuable, 15,769 shares at December 31, 2021;
18,113 shares at December 31, 2020 1,212 1,344 Additional paid-in capital 6,635,000 6,617,404 Retained earnings 14,646,448 13,444,428 Accumulated other comprehensive income (loss), net (127,578
) (63,032 )
31,426,742 shares at December 31, 2020 (5,081,548 ) (5,142,732 ) Total shareholders' equity 17,903,405
16,187,283
Total liabilities and shareholders' equity $ 155,107,160 $ 142,601,105
See accompanying notes to financial statements.
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M&T BANK CORPORATION AND SUBSIDIARIES
Consolidated Statement of Income
Year Ended December 31
(In thousands, except per share) 2021 2020 2019
Interest income
Loans and leases, including fees $ 3,748,988 $ 3,975,053 $ 4,442,182
Investment securities
Fully taxable 141,046 176,469 288,532
Exempt from federal taxes 116 183 321
Deposits at banks 47,491 32,956 141,397
Other 1,143 8,051 7,161
Total interest income 3,938,784 4,192,712 4,879,593
Interest expense
Savings and interest-checking deposits 32,998 146,701 368,003
Time deposits 18,635 66,280 95,426
Deposits at Cayman Islands office 201 4,054 21,917
Short-term borrowings 7 28 24,741
Long-term borrowings 62,165 109,332 239,242
Total interest expense 114,006 326,395 749,329
Net interest income 3,824,778 3,866,317 4,130,264
Provision for credit losses (75,000 ) 800,000 176,000
Net interest income after provision for credit
losses 3,899,778 3,066,317 3,954,264
Other income
Mortgage banking revenues 571,329 566,641 457,770
Service charges on deposit accounts 402,113 370,788 432,978
Trust income 644,716 601,884 572,608
Brokerage services income 62,791 47,428 48,922
Trading account and foreign exchange gains 24,376 40,536 62,044
Gain (loss) on bank investment securities (21,220 ) (9,421 ) 18,037
Other revenues from operations 482,889 470,588 469,320
Total other income 2,166,994 2,088,444 2,061,679
Other expense
Salaries and employee benefits 2,045,677 1,950,692 1,900,797
Equipment and net occupancy 326,698 322,037 324,079
Outside data processing and software 291,839 258,480 229,731
FDIC assessments 69,704 53,803 41,535
Advertising and marketing 64,428 61,904 93,472
Printing, postage and supplies 36,507 39,869 39,893
Amortization of core deposit and other
intangible assets 10,167 14,869 19,490
Other costs of operations 766,603 683,586 819,685
Total other expense 3,611,623 3,385,240 3,468,682
Income before taxes 2,455,149 1,769,521 2,547,261
Income taxes 596,403 416,369 618,112
Net income $ 1,858,746 $ 1,353,152 $ 1,929,149
Net income available to common shareholders
Basic $ 1,776,977 $ 1,279,066 $ 1,849,509
Diluted 1,776,987 1,279,068 1,849,511
Net income per common share
Basic $ 13.81 $ 9.94 $ 13.76
Diluted 13.80 9.94 13.75
See accompanying notes to financial statements.
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--------------------------------------------------------------------------------M&T BANK CORPORATION AND SUBSIDIARIES
Consolidated Statement of Comprehensive Income
Year Ended December 31
(In thousands) 2021 2020 2019
Net income $ 1,858,746 $ 1,353,152 $ 1,929,149
Other comprehensive income (loss), net of tax
and
reclassification adjustments:
Net unrealized gains (losses) on investment
securities (66,977 ) 107,222 184,906
Cash flow hedges adjustments (210,626 ) 172,787 108,520
Foreign currency translation adjustments (862 ) 2,284 1,091
Defined benefit plans liability adjustments 213,919 (138,645 ) (81,116 )
Total other comprehensive income (loss) (64,546 ) 143,648 213,401
Total comprehensive income $ 1,794,200 $ 1,496,800 $ 2,142,550
See accompanying notes to financial statements.
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M&T BANK CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Year Ended December 31
(In thousands) 2021 2020 2019
Cash flows from operating activities
Net income $ 1,858,746 $ 1,353,152 $ 1,929,149
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for credit losses (75,000 ) 800,000 176,000
Depreciation and amortization of premises and
equipment 224,274 220,598 209,937
Amortization of capitalized servicing rights 89,767 84,821 71,888
Amortization of core deposit and other intangible
assets 10,167 14,869 19,490
Provision for deferred income taxes 87,159 (31,291 ) 57,548
Asset write-downs 8,431 21,014 7,701
Net gain (loss) on sales of assets (10,308 ) (19,441 ) 31,526
Net change in accrued interest receivable,
payable 65,724 (132,252 ) 30,923
Net change in other accrued income and expense 52,540 (418,752 ) 75,930
Net change in loans originated for sale (163,623 ) (542,078 ) 130,230
Net change in trading account assets and
liabilities 567,082 (561,453 ) (382,767 )
Net cash provided by operating activities 2,714,959 789,187 2,357,555
Cash flows from investing activities
Proceeds from sales of investment securities
Available for sale - - 107
Equity and other securities 17,654 67,036 1,169,876
Proceeds from maturities of investment securities
Available for sale 1,433,793 1,614,557 2,621,603
Held to maturity 615,201 911,555 1,162,820
Purchases of investment securities
Available for sale (677,916 ) (7,581 ) (28,120 )
Held to maturity (1,601,698 ) (11,993 ) (495,277 )
Equity and other securities (30,153 ) (29,004 ) (979,734 )
Net (increase) decrease in loans and leases 5,676,670 (7,231,694 ) (2,795,263 )
Net (increase) decrease in interest-bearing
deposits at banks (18,208,494 ) (16,473,656 ) 915,043
Capital expenditures, net (149,213 ) (172,289 ) (178,049 )
Net increase in loan servicing advances (197,141 ) (754,823 ) (470,078 )
Other, net (510,302 ) 67,411 (195,921 )
Net cash provided (used) by investing activities (13,631,599 ) (22,020,481 ) 727,007
Cash flows from financing activities
Net increase in deposits 11,737,671 25,037,167 4,616,082
Net decrease in short-term borrowings (12,436 ) (2,881 ) (4,336,015 )
Proceeds from long-term borrowings 9,500 - -
Payments on long-term borrowings (853,091 ) (2,665,023 ) (1,553,493 )
Purchases of treasury stock - (373,750 ) (1,349,785 )
Dividends paid - common (580,260 ) (568,112 ) (552,138 )
Dividends paid - preferred (68,200 ) (68,256 ) (67,454 )
Proceeds from issuance of Series I and G
preferred stock 495,000 - 396,000
Redemption of Series A and C preferred stock - - (381,500 )
Other, net (26,710 ) (11,413 ) (25,393 )
Net cash provided (used) by financing activities 10,701,474 21,347,732 (3,253,696 )
Net increase (decrease) in cash, cash equivalents
and restricted cash (215,166 ) 116,438 (169,134 )
Cash, cash equivalents and restricted cash at
beginning of period 1,552,743 1,436,305 1,605,439
Cash, cash equivalents and restricted cash at end
of period $ 1,337,577 $ 1,552,743 $ 1,436,305
Supplemental disclosure of cash flow information
Interest received during the period $ 3,976,804 $ 4,135,990 $ 4,892,301
Interest paid during the period 139,164 372,291 735,787
Income taxes paid during the period 314,295 275,558 320,513
Supplemental schedule of noncash investing and
financing activities
Real estate acquired in settlement of loans $ 8,851 $ 20,646 $ 90,072
Loans held for sale transferred to loans held for
investment 330,188 - -
Securitization of residential mortgage loans
allocated to
Available-for-sale investment securities $ - $ - $ 5,379
Capitalized servicing rights - - 83
Adoption of lease accounting standard
Right-of-use assets $ - $ - $ 393,877
Other liabilities - - 398,810
Additions to right-of-use assets under operating
leases $ 57,760 $ 70,754 $ 132,219
See accompanying notes to financial statements.
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M&T BANK CORPORATION AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Equity
Accumulated
Other
Common Additional Comprehensive
Preferred Common Stock Paid-in Retained Income Treasury
Dollars in thousands, except
per share Stock Stock Issuable Capital Earnings (Loss), Net Stock Total
2019
Balance - January 1, 2019 $ 1,231,500 79,883 1,726
6,579,342 11,516,672 (420,081 ) (3,528,851 ) $ 15,460,191
Total comprehensive income - - - - 1,929,149 213,401 -
2,142,550
Preferred stock cash dividends - - - - (72,482 ) - - (72,482 ) Redemption of Series A and Series C preferred stock (381,500 ) - - - - - - (381,500 ) Issuance of Series G preferred stock 400,000 - - (4,000 ) - - - 396,000 Purchases of treasury stock - - - - - - (1,349,785 ) (1,349,785 ) Stock-based compensation transactions, net - (12 ) (160 ) 18,197 (207 ) - 56,073
73,891
Common stock cash dividends -
$4.10 per share - - - - (552,216 ) - - (552,216 ) Balance - December 31, 2019 $ 1,250,000 79,871 1,566 6,593,539 12,820,916 (206,680 ) (4,822,563 ) $ 15,716,649 2020 Cumulative effect of change in accounting principle - credit losses - - - - (91,925 ) - - (91,925 ) Total comprehensive income - - - - 1,353,152 143,648 -
1,496,800
Preferred stock cash dividends - - - - (68,228 ) - - (68,228 ) Purchases of treasury stock - - - - - - (373,750 ) (373,750 ) Stock-based compensation transactions, net - - (222 ) 23,865 (411 ) - 53,581
76,813
Common stock cash dividends -
$4.40 per share - - - - (569,076 ) - - (569,076 ) Balance - December 31, 2020 $ 1,250,000 79,871 1,344 6,617,404 13,444,428 (63,032 ) (5,142,732 ) $
16,187,283
2021
Total comprehensive income - - - - 1,858,746 (64,546 ) - 1,794,200 Preferred stock cash dividends - - - - (72,915 ) - - (72,915 ) Issuance of Series I preferred stock 500,000 - - (5,000 ) - - - 495,000 Stock-based compensation transactions, net - - (132 ) 22,596 (844 ) - 61,184
82,804
Common stock cash dividends -
$4.50 per share - - - - (582,967 ) - - (582,967 )
Balance - December 31, 2021 $ 1,750,000 79,871 1,212 6,635,000 14,646,448 (127,578 ) (5,081,548 ) $ 17,903,405
See accompanying notes to financial statements.
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M&T BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements
1. Significant accounting policiesM&T Bank Corporation ("M&T") is a bank holding company headquartered inBuffalo, New York . Through subsidiaries, M&T provides individuals, corporations and other businesses, and institutions with commercial and retail banking services, including loans and deposits, trust, mortgage banking, asset management, insurance and other financial services. Banking activities are largely focused on consumers residing inNew York State ,Maryland ,New Jersey ,Pennsylvania ,Delaware ,Connecticut ,Virginia ,West Virginia and theDistrict of Columbia and on small and medium-size businesses based in those areas. Certain subsidiaries also conduct activities in other areas. The accounting and reporting policies of M&T and subsidiaries ("the Company") are in accordance with accounting principles generally accepted inthe United States of America ("GAAP") and general practices within the banking industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant accounting policies are as follows:
Consolidation
The consolidated financial statements include M&T and all of its subsidiaries.
All significant intercompany accounts and transactions of consolidated
subsidiaries have been eliminated in consolidation. The financial statements of
M&T included in note 26 report investments in subsidiaries under the equity
method. Information about some limited purpose entities that are affiliates of
the Company but are not included in the consolidated financial statements
appears in note 20.
Consolidated Statement of Cash Flows
For purposes of this statement, cash and due from banks and federal funds sold
are considered cash and cash equivalents.
Securities purchased under agreements to resell and securities sold under
agreements to repurchase
Securities purchased under agreements to resell and securities sold under
agreements to repurchase are treated as collateralized financing transactions
and are recorded at amounts equal to the cash or other consideration exchanged.
It is generally the Company's policy to take possession of collateral pledged to
secure agreements to resell.
Trading account
Financial instruments used for trading purposes are stated at fair value.
Realized gains and losses and unrealized changes in fair value of financial
instruments utilized in trading activities are included in "trading account and
foreign exchange gains" in the consolidated statement of income.
Investment securities
Investments in debt securities are classified as held to maturity and stated at
amortized cost when management has the positive intent and ability to hold such
securities to maturity. Investments in other debt securities are classified as
available for sale and stated at estimated fair value with unrealized changes in
fair value included in "accumulated other comprehensive income (loss), net."
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Investments in equity securities having readily determinable fair values are
stated at fair value and unrealized changes in fair value are included in
earnings. Investments in equity securities that do not have readily determinable
fair values are stated at cost minus impairment, if any, plus or minus changes
resulting from observable price changes in orderly transactions for the
identical or a similar investment of the same issuer. Amortization of premiums
and accretion of discounts for investment securities available for sale and held
to maturity are included in interest income.
Other securities are stated at cost and include stock of the Federal Reserve
Bank of New York and the Federal Home Loan Bank ("FHLB") of New York .
Beginning in 2020 GAAP requires an allowance for credit losses be deducted from
the amortized cost basis of financial assets, including investment securities
held to maturity, to present the net carrying value at the amount that is
expected to be collected over the contractual term. In cases where fair value of
an available for sale debt security is less than its amortized cost basis and
the Company does not intend to sell the available for sale debt security and it
is not more likely than not that the Company will be required to sell the
security before recovery of the amortized cost basis, the difference between the
fair value and the amortized cost basis is separated into (a) the amount
representing the credit loss and (b) the amount related to all other factors.
The amount related to the credit loss is recognized as an allowance for credit
losses while the amount related to other factors is recognized in other
comprehensive income, net of applicable income taxes. If the Company intends to
sell the security or it is more likely than not to be required to sell the
security before recovery of the amortized cost basis, the security is written
down to fair value with the entire amount recognized in earnings. Subsequently,
the Company accounts for the debt security as if the security had been purchased
on the measurement date of the write down at an amortized cost basis equal to
the previous amortized cost basis less the amount of the write down recognized
in earnings. Prior to 2020 individual debt securities were written down through
a charge to earnings when declines in value below the cost basis of the security
were considered other than temporary. Realized gains and losses on the sales of
investment securities are determined using the specific identification method.
Loans and leases
The Company's accounting methods for loans depends on whether the loans were
originated or acquired by the Company.
Originated loans and leases
Loan fees and certain direct loan origination costs are deferred and recognized
as an interest yield adjustment over the life of the loan. Net deferred fees
have been included in unearned discount as a reduction of loans outstanding.
Interest income on loans is accrued on a level yield method. Loans are placed on
nonaccrual status and previously accrued interest thereon is charged against
income when it is probable that the Company will be unable to collect all
amounts according to the contractual terms of the loan agreement or when
principal or interest is delinquent 90 days. Certain loans greater than 90 days
delinquent continue to accrue interest if they are well-secured and in the
process of collection. Loans less than 90 days delinquent are deemed to have an
insignificant delay in payment and generally continue to accrue interest.
Interest received on loans placed on nonaccrual status is generally applied to
reduce the carrying value of the loan or, if principal is considered fully
collectable, recognized as interest income. Nonaccrual commercial loans and
commercial real estate loans are returned to accrual status when borrowers have
demonstrated an ability to repay their loans and there are no delinquent
principal and interest payments. Loans secured by residential real estate are
returned to accrual status when they are deemed to have an insignificant delay
in payments of 90 days or less. Consumer loans not secured by residential real
estate are returned to accrual status when all past due principal and interest
payments have been paid by the borrower. Loan balances are
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charged off when it becomes evident that such balances are not fully
collectable. For commercial loans and commercial real estate loans, charge-offs
are recognized after an assessment by credit personnel of the capacity and
willingness of the borrower to repay, the estimated value of any collateral, and
any other potential sources of repayment. A charge-off is recognized when, after
such assessment, it becomes evident that the loan balance is not fully
collectable. For loans secured by residential real estate, the excess of the
loan balances over the net realizable value of the property collateralizing the
loan is charged-off when the loan becomes 150 days delinquent. Consumer loans
are generally charged-off when the loans are 91 to 180 days past due, depending
on whether the loan is collateralized and the status of repossession activities
with respect to such collateral.
During the normal course of business, the Company modifies loans to maximize
recovery efforts. If a borrower is experiencing financial difficulty and a
concession to the terms of the loan agreement is granted that the Company would
not otherwise consider, the modification is considered a troubled debt
restructuring and such loans are classified as either nonaccrual or renegotiated
loans. Due to the direct and indirect effects of the Coronavirus Disease 2019
("COVID-19") pandemic, a dramatic reduction in economic activity severely
hampered the ability for businesses and consumers to meet their repayment
obligations. The Coronavirus Aid, Relief, and Economic Security Act and the
Consolidated Appropriations Act, 2021 (collectively "CARES Act"), in addition to
providing financial assistance to both businesses and consumers, created a
forbearance program for federally-backed mortgage loans, protected borrowers
from negative credit reporting due to loan accommodations related to the
pandemic, and provided financial institutions the option to temporarily suspend
certain requirements under GAAP related to troubled debt restructurings to
account for the effects of COVID-19. The bank regulatory agencies likewise
issued guidance encouraging financial institutions to work prudently with
borrowers who were unable to meet their contractual payment obligations because
of the effects of COVID-19. The guidance, with concurrence of the Financial
Accounting Standards Board , and provisions of the CARES Act allowed
modifications made on a good faith basis in response to COVID-19 to borrowers
who were current with their payments prior to any relief, to not be treated as
troubled debt restructurings nor be reported as past due. Modifications included
payment deferrals (including maturity extensions), covenant waivers and fee
waivers. The Company worked with its customers affected by COVID-19 and granted
modifications across many of its loan portfolios. To the extent that such
modifications met the criteria described, the modified loans were not classified
as troubled debt restructurings nor reported as past due.
Commitments to sell real estate loans are utilized by the Company to hedge the
exposure to changes in fair value of real estate loans held for sale. The
carrying value of hedged real estate loans held for sale recorded in the
consolidated balance sheet includes changes in estimated fair value during the
hedge period, typically from the date of close through the sale date. Valuation
adjustments made on these loans and commitments are included in "mortgage
banking revenues."
Acquired loans and leases
Beginning in 2020, expected credit losses for purchased loans with credit
deterioration are initially recognized as an allowance for credit losses and are
added to the purchase price to determine the amortized cost basis of the
loans. Any non-credit discount or premium resulting from acquiring such loans is
recognized as an adjustment to interest income over the remaining lives of the
loans. Subsequent changes in the amount of expected credit losses on such loans
are recognized in the allowance for credit losses in the same manner as
originated loans. Prior to 2020, loans acquired in a business combination were
initially recorded at fair value with no carry-over of an acquired entity's
previously established allowance for credit losses. Purchased impaired loans
represented specifically identified loans with evidence of credit deterioration
for which it was probable at acquisition that the
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Company would be unable to collect all contractual principal and interest
payments. For purchased impaired loans and other loans acquired at a discount
that was, in part, attributable to credit quality, the excess of cash flows
expected at acquisition over the estimated fair value of acquired loans was
recognized as interest income over the remaining lives of the loans. Subsequent
decreases in the expected cash flows required the Company to evaluate the need
for additions to the Company's allowance for credit losses. Subsequent
improvements in expected cash flows resulted first in the recovery of any
related allowance for credit losses and then in recognition of additional
interest income over the then-remaining lives of the loans. The Company
generally recognized the excess of cash flows expected at acquisition over the
estimated fair value of the acquired loans as interest income over the remaining
lives of such loans regardless of the borrower's repayment status.
For all other acquired loans, the difference between the fair value and
outstanding principal balance of the loans is recognized as an adjustment to
interest income over the lives of those loans. Those loans are then accounted
for in a manner that is similar to originated loans.
Allowance for credit losses
On January 1, 2020, the Company adopted amended accounting guidance which
requires an allowance for credit losses to be deducted from the amortized cost
basis of financial assets to present the net carrying value at the amount that
is expected to be collected over the contractual term of the asset considering
relevant information about past events, current conditions, and reasonable and
supportable forecasts that affect the collectability of the reported amount. In
estimating expected losses in the loan and lease portfolio, borrower-specific
financial data and macro-economic assumptions are utilized to project losses
over a reasonable and supportable forecast period. Assumptions and judgment are
applied to measure amounts and timing of expected future cash flows, collateral
values and other factors used to determine the borrowers' abilities to repay
obligations. Subsequent to the forecast period, the Company utilizes longer-term
historical loss experience to estimate losses over the remaining contractual
life of the loans. Prior to 2020, the allowance for credit losses represented
the amount that in management's judgment reflected incurred credit losses
inherent in the loan and lease portfolio as of the balance sheet date.
Assets taken in foreclosure of defaulted loans
Assets taken in foreclosure of defaulted loans are primarily comprised of
commercial and residential real property and are included in "other assets" in
the consolidated balance sheet. An in-substance repossession or foreclosure
occurs and a creditor is considered to have received physical possession of
residential real estate property collateralizing a consumer mortgage loan upon
either (1) the creditor obtaining legal title to the residential real estate
property upon completion of a foreclosure or (2) the borrower conveying all
interest in the residential real estate property to the creditor to satisfy that
loan through completion of a deed in lieu of foreclosure or through a similar
legal agreement. Upon acquisition of assets taken in satisfaction of a defaulted
loan, the excess of the remaining loan balance over the asset's estimated fair
value less costs to sell is charged-off against the allowance for credit losses.
Subsequent declines in value of the assets are recognized as "other costs of
operations" in the consolidated statement of income.
Premises and equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation expense is computed principally using the straight-line method over
the estimated useful lives of the assets.
Capitalized servicing rights
Capitalized servicing assets are included in "other assets" in the consolidated
balance sheet. Separately recognized servicing assets are initially measured at
fair value. The Company uses the
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amortization method to subsequently measure servicing assets. Under that method,
capitalized servicing assets are charged to expense in proportion to and over
the period of estimated net servicing income.
To estimate the fair value of servicing rights, the Company considers market
prices for similar assets and the present value of expected future cash flows
associated with the servicing rights calculated using assumptions that market
participants would use in estimating future servicing income and expense. Such
assumptions include estimates of the cost of servicing loans, loan default
rates, an appropriate discount rate, and prepayment speeds. For purposes of
evaluating and measuring impairment of capitalized servicing rights, the Company
stratifies such assets based on the predominant risk characteristics of the
underlying financial instruments that are expected to have the most impact on
projected prepayments, cost of servicing and other factors affecting future cash
flows associated with the servicing rights. Such factors may include financial
asset or loan type, note rate and term. The amount of impairment recognized is
the amount by which the carrying value of the capitalized servicing rights for a
stratum exceeds estimated fair value. Impairment is recognized through a
valuation allowance.
Sales and securitizations of financial assets
Transfers of financial assets for which the Company has surrendered control of
the financial assets are accounted for as sales. Interests in a sale of
financial assets that continue to be held by the Company, including servicing
rights, are initially measured at fair value. The fair values of retained debt
securities are generally determined through reference to independent pricing
information. The fair values of retained servicing rights and any other retained
interests are determined based on the present value of expected future cash
flows associated with those interests and by reference to market prices for
similar assets.
Securitization structures typically require the use of special-purpose trusts
that are considered variable interest entities. A variable interest entity is
included in the consolidated financial statements if the Company has the power
to direct the activities that most significantly impact the variable interest
entity's economic performance and has the obligation to absorb losses or the
right to receive benefits of the variable interest entity that could potentially
be significant to that entity.
Goodwill and core deposit and other intangible assets
Goodwill represents the excess of the cost of an acquired entity over the fair
value of the identifiable net assets acquired. Goodwill is not amortized, but
rather is tested for impairment at least annually at the reporting unit level,
which is either at the same level or one level below an operating segment. Other
acquired intangible assets with finite lives, such as core deposit intangibles,
are initially recorded at estimated fair value and are amortized over their
estimated lives. Core deposit and other intangible assets are generally
amortized using accelerated methods over estimated useful lives of five to ten
years. The Company periodically assesses whether events or changes in
circumstances indicate that the carrying amounts of core deposit and other
intangible assets may be impaired.
Derivative financial instruments
The Company accounts for derivative financial instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as (a) a
hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a foreign currency
denominated forecasted transaction.
The Company utilizes interest rate swap agreements as part of the management of
interest rate risk to modify the repricing characteristics of certain portions
of its portfolios of earning assets and
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interest-bearing liabilities. For such agreements, amounts receivable or payable
are recognized as accrued under the terms of the agreement and the net
differential is recorded as an adjustment to interest income or expense of the
related asset or liability. Interest rate swap agreements may be designated as
either fair value hedges or cash flow hedges. In a fair value hedge, the fair
values of the interest rate swap agreements and changes in the fair values of
the hedged items are recorded in the Company's consolidated balance sheet with
the corresponding gain or loss recognized in current earnings. The difference
between changes in the fair values of interest rate swap agreements and the
hedged items represents hedge ineffectiveness and is recorded in the same income
statement line item that is used to present the earnings effect of the hedged
item in the consolidated statement of income. In a cash flow hedge, the
derivative's unrealized gain or loss is initially recorded as a component of
other comprehensive income and subsequently reclassified into earnings when the
forecasted transaction affects earnings.
The Company utilizes commitments to sell real estate loans to hedge the exposure
to changes in the fair value of real estate loans held for sale. Commitments to
originate real estate loans to be held for sale and commitments to sell real
estate loans are generally recorded in the consolidated balance sheet at
estimated fair value. Valuation adjustments made on these commitments are
included in "mortgage banking revenues."
Derivative instruments not related to mortgage banking activities, including
financial futures commitments and interest rate swap agreements, that do not
satisfy the hedge accounting requirements are recorded at fair value and are
generally classified as trading account assets or liabilities with resultant
changes in fair value being recognized in "trading account and foreign exchange
gains" in the consolidated statement of income.
Revenue from contracts with customers
A significant amount of the Company's revenues are derived from net interest
income on financial assets and liabilities, mortgage banking revenues, trading
account and foreign exchange gains, investment securities gains, loan and letter
of credit fees, income from bank-owned life insurance, and certain other
revenues that are generally excluded from the scope of accounting guidance for
revenue from contracts with customers. For other noninterest income revenue
streams, the Company generally recognizes the expected amount of consideration
as revenue when the performance obligations related to the services under the
terms of a contract are satisfied. The Company's contracts generally do not
contain terms that necessitate significant judgment to determine the amount of
revenue to recognize.
Stock-based compensation
Compensation expense is recognized over the vesting period of stock-based awards
based on estimated grant date value, except that the recognition of compensation
costs is accelerated for stock-based awards granted to retirement-eligible
employees and employees who will become retirement-eligible prior to full
vesting of the award because the Company's incentive compensation plan allows
for vesting at the time an employee retires.
Income taxes
Deferred tax assets and liabilities are recognized for the future tax effects
attributable to differences between the financial statement value of existing
assets and liabilities and their respective tax bases and carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates and
laws.
The Company evaluates uncertain tax positions using the two-step process
required by GAAP. The first step requires a determination of whether it is more
likely than not that a tax position will be sustained upon examination,
including resolution of any related appeals or litigation processes, based on
the technical merits of the position. Under the second step, a tax position that
meets the more-
135
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likely-than-not recognition threshold is measured at the largest amount of
benefit that is greater than fifty percent likely of being realized upon
ultimate settlement.
The Company accounts for its investments in qualified affordable housing
projects using the proportional amortization method. Under that method, the
Company amortizes the initial cost of the investment in proportion to the tax
credits and other tax benefits received and recognizes the net investment
performance in the income statement as a component of income tax expense.
Earnings per common share
Basic earnings per common share exclude dilution and are computed by dividing
income available to common shareholders by the weighted-average number of common
shares outstanding (exclusive of shares represented by the unvested portion of
restricted stock and restricted stock unit grants) and common shares issuable
under deferred compensation arrangements during the period. Diluted earnings per
common share reflect shares represented by the unvested portion of restricted
stock and restricted stock unit grants and the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in earnings. Proceeds assumed to have been received on such exercise
or conversion are assumed to be used to purchase shares of M&T common stock at
the average market price during the period, as required by the "treasury stock
method" of accounting.
GAAP requires that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) shall be considered participating securities and shall be included in
the computation of earnings per common share pursuant to the two-class method.
The Company has issued stock-based compensation awards in the form of restricted
stock and restricted stock units that contain such rights and, accordingly, the
Company's earnings per common share are calculated using the two-class method.
Treasury stock
Repurchases of shares of M&T common stock are recorded at cost as a reduction of
shareholders' equity. Reissuances of shares of treasury stock are recorded at
average cost.
2. Acquisition
On February 22, 2021, M&T announced that it had entered into a definitive
agreement with People's United Financial, Inc. ("People's United"),
headquartered in Bridgeport, Connecticut , under which People's United will be
acquired by M&T in an all-stock transaction. Pursuant to the terms of the
agreement, People's United shareholders will receive consideration valued at
.118 of an M&T share in the form of M&T common stock. People's United
outstanding preferred stock will be converted into a new series of M&T preferred
stock upon completion of the acquisition. The transaction is valued at
approximately $7.8 billion (with the price based on M&T's closing price of
$153.58 per share as of December 31, 2021).
The merger has been approved by the boards of directors and shareholders of each
company. The merger is expected to close promptly after the parties have
satisfied customary closing conditions, including the approval of the Board of
Governors of the Federal Reserve System. As of December 31, 2021, People's
United disclosed that it had total assets of $64.6 billion, including $37.9
billion of loans, $56.7 billion of liabilities, including $53.8 billion of
deposits, and $7.9 billion of stockholders' equity.
In connection with the acquisition, the Company incurred merger-related expenses
consisting of professional services, including legal expenses and
technology-related activities to prepare for planned integration efforts, and
printing costs associated with communications with shareholders that totaled
approximately $44 million for the year ended December 31, 2021.
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3. Investment securities
The amortized cost and estimated fair value of investment securities were as
follows:
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
(In thousands)
December 31, 2021
Investment securities available for sale:
U.S. Treasury and federal agencies $ 682,267 $ 229 $ 3,806 $ 678,690
Mortgage-backed securities:
Government issued or guaranteed 3,042,771 113,102 561 3,155,312
Other debt securities 124,309 1,974 4,481 121,802
3,849,347 115,305 8,848 3,955,804
Investment securities held to maturity:
U.S. Treasury and federal agencies 3,052 - 9 3,043
Obligations of states and political
subdivisions 177 2 - 179
Mortgage-backed securities:
Government issued or guaranteed 2,667,328 49,221 8,376 2,708,173
Privately issued 61,555 10,520 14,742 57,333
Other debt securities 2,562 - - 2,562
2,734,674 59,743 23,127 2,771,290
Total debt securities $ 6,584,021 $ 175,048 $ 31,975 $ 6,727,094
Equity and other securities:
Readily marketable equity - at fair value $ 73,774 $ 4,460 $ 594 $ 77,640
Other - at cost 387,742 - - 387,742
Total equity and other securities $ 461,516 $ 4,460 $ 594 $ 465,382
December 31, 2020
Investment securities available for sale:
U.S. Treasury and federal agencies $ 9,154 $ 198 $ 14 $ 9,338
Mortgage-backed securities:
Government issued or guaranteed 4,475,406 208,787 755 4,683,438
Privately issued 16 - - 16
Other debt securities 136,451 1,664 8,301 129,814
4,621,027 210,649 9,070 4,822,606
Investment securities held to maturity:
U.S. Treasury and federal agencies 2,999 - - 2,999
Obligations of states and political
subdivisions 1,531 9 - 1,540
Mortgage-backed securities:
Government issued or guaranteed 1,664,443 100,176 11 1,764,608
Privately issued 77,155 11,056 17,938 70,273
Other debt securities 2,861 - - 2,861
1,748,989 111,241 17,949 1,842,281
Total debt securities $ 6,370,016 $ 321,890 $ 27,019 $ 6,664,887
Equity and other securities:
Readily marketable equity - at fair value $ 67,891 $ 25,094 $ - $ 92,985
Other - at cost 381,117 - - 381,117
Total equity and other securities $ 449,008 $ 25,094 $ - $ 474,102
137-------------------------------------------------------------------------------- No investment in securities of a single non-U.S. Government , government agency or government guaranteed issuer exceeded ten percent of shareholders' equity at December 31, 2021. As of December 31, 2021, the latest available investment ratings of all obligations of states and political subdivisions, privately issued mortgage-backed securities and other debt securities were:
Average Credit Rating of Fair Value Amount
Amortized Estimated A or Not
Cost Fair Value Better BBB BB B or Less Rated
(In thousands)
Obligations of states and
political
subdivisions $ 177 $ 179 $ 179 $ - $ - $ - $ -
Privately issued
mortgage-backed
securities 61,555 57,333 - - - 485 56,848
Other debt securities 126,871 124,364 6,526 51,349 32,593 - 33,896
Total $ 188,603 $ 181,876 $ 6,705 $ 51,349 $ 32,593 $ 485 $ 90,744
The amortized cost and estimated fair value of collateralized mortgage obligations included in mortgage-backed securities were as follows:
December 31
2021 2020
(In thousands)
Collateralized mortgage obligations:
Amortized cost $ 61,980 $ 77,964
Estimated fair value 57,763 71,099
There were no significant gross realized gains or losses from sales of investment securities in 2021, 2020 or 2019. At December 31, 2021, the amortized cost and estimated fair value of debt securities by contractual maturity were as follows:
Amortized Estimated
Cost Fair Value
(In thousands)
Debt securities available for sale:
Due in one year or less $ 6,912 $ 6,943
Due after one year through five years 683,983 680,827
Due after five years through ten years 85,681 86,205
Due after ten years 30,000 26,517
806,576 800,492
Mortgage-backed securities available for sale 3,042,771 3,155,312
$ 3,849,347 $ 3,955,804
Debt securities held to maturity:
Due in one year or less $ 3,229 $ 3,222
Due after ten years 2,562 2,562
5,791 5,784
Mortgage-backed securities held to maturity 2,728,883 2,765,506
$ 2,734,674 $ 2,771,290
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A summary of investment securities that as of December 31, 2021 and 2020 had
been in a continuous unrealized loss position for less than twelve months and
those that had been in a continuous unrealized loss position for twelve months
or longer follows:
Less Than 12 Months 12 Months or More
Fair Unrealized Fair Unrealized
Value Losses Value Losses
(In thousands)
December 31, 2021
Investment securities available for sale:
U.S. Treasury and federal agencies $ 598,566 $ 3,806 $ - $ -
Mortgage-backed securities:
Government issued or guaranteed 10,111 54 20,824 507
Other debt securities 3,760 74 66,419 4,407
612,437 3,934 87,243 4,914
Investment securities held to maturity:
U.S. Treasury and federal agencies 3,043 9 - -
Mortgage-backed securities:
Government issued or guaranteed 1,372,236 8,356 1,251 20
Privately issued - - 43,692 14,742
1,375,279 8,365 44,943 14,762
Total $ 1,987,716 $ 12,299 $ 132,186 $ 19,676
December 31, 2020
Investment securities available for sale:
U.S. Treasury and federal agencies $ 985 $ 14 $ - $ -
Mortgage-backed securities:
Government issued or guaranteed 18,687 356 16,556 399
Other debt securities 16,055 181 63,462 8,120
35,727 551 80,018 8,519
Investment securities held to maturity:
Mortgage-backed securities:
Government issued or guaranteed 2,039 11 - -
Privately issued - - 52,418 17,938
2,039 11 52,418 17,938
Total $ 37,766 $ 562 $ 132,436 $ 26,457
The Company owned 371 individual debt securities with aggregate gross unrealized
losses of $32 million at December 31, 2021. Based on a review of each of the
securities in the investment securities portfolio at December 31, 2021, the
Company concluded that it expected to recover the amortized cost basis of its
investment. As of December 31, 2021, the Company does not intend to sell nor is
it anticipated that it would be required to sell any of its impaired investment
securities at a loss. At December 31, 2021, the Company has not identified
events or changes in circumstances which may have a significant adverse effect
on the fair value of the $388 million of cost method investment securities.
The Company estimated no material allowance for credit losses for its investment
securities classified as held-to-maturity at December 31, 2021 or December 31,
2020, as the substantial majority of such investment securities are obligations
backed by the U.S government or its agencies.
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At December 31, 2021, investment securities with a carrying value of $5.1
billion, including $2.4 billion of investment securities available for sale,
were pledged to secure borrowings from various FHLBs, repurchase agreements,
governmental deposits, interest rate swap agreements and available lines of
credit as described in note 9.
Investment securities pledged by the Company to secure obligations whereby the
secured party is permitted by contract or custom to sell or repledge such
collateral totaled $96 million at December 31, 2021. The pledged securities
included securities of the U.S. Treasury and federal agencies and
mortgage-backed securities.
4. Loans and leases
Total loans and leases outstanding were comprised of the following:
December 31
2021 2020
(In thousands)
Loans
Commercial, financial, etc. $ 22,524,542 $ 26,554,486
Commercial real estate 35,473,884 37,728,844
Residential real estate 16,077,275 16,786,673
Consumer 17,964,331 16,558,889
Total loans 92,040,032 97,628,892
Leases
Commercial 1,096,646 1,246,896
Total loans and leases 93,136,678 98,875,788
Less: unearned discount (224,226 ) (339,921 ) Total loans and leases, net of unearned discount $ 92,912,452 $ 98,535,867
One-to-four family residential mortgage loans held for sale were $474 million at December 31, 2021 and $777 million at December 31, 2020. Commercial real estate loans held for sale were $425 million at December 31, 2021 and $278 million at December 31, 2020. The amount of foreclosed residential real estate property held by the Company was $24 million and $28 million at December 31, 2021 and 2020, respectively. There were $151 million and $214 million at December 31, 2021 and 2020, respectively, in loans secured by residential real estate that were in the process of foreclosure. Of all loans in the process of foreclosure at December 31, 2021, approximately 44% were government guaranteed. Borrowings by directors and certain officers of M&T and its banking subsidiaries, and by associates of such persons, exclusive of loans aggregating less than $60,000, amounted to $113 million and $72 million at December 31, 2021 and 2020, respectively. During 2021, new borrowings by such persons amounted to $42 million (including any borrowings of new directors or officers that were outstanding at the time of their election) and repayments and other reductions (including reductions resulting from individuals ceasing to be directors or officers) were $1 million. At December 31, 2021, approximately $9.5 billion of commercial loans and leases, $11.9 billion of commercial real estate loans, $11.5 billion of one-to-four family residential real estate loans, $1.9 billion of home equity loans and lines of credit and $10.2 billion of other consumer loans were pledged to secure outstanding borrowings and available lines of credit from the FHLB and theFederal Reserve Bank of New York as described in note 9. 140 -------------------------------------------------------------------------------- A summary of current, past due and nonaccrual loans as of December 31, 2021 and 2020 follows: Accruing Loans Past Due 90 30-89 Days Days or Current Past Due More Nonaccrual Total (In thousands) December 31, 2021 Commercial, financial, leasing, etc. $ 23,101,810 $ 142,208 $ 8,284 $ 221,022 $ 23,473,324 Real estate: Commercial 24,712,643 319,099 31,733 1,069,280 26,132,755 Residential builder and developer 1,400,437 2,904 - 3,005 1,406,346 Other commercial construction 7,722,049 17,175 - 111,405 7,850,629 Residential 13,294,872 239,561 920,080 355,858 14,810,371 Residential - limited documentation 1,124,520 16,666 - 122,888 1,264,074 Consumer: Home equity lines and loans 3,476,617 15,486 - 70,488 3,562,591 Recreational finance 7,985,173 40,544 - 27,811 8,053,528 Automobile 4,604,772 40,064 - 34,037 4,678,873 Other 1,620,147 12,223 3,302 44,289 1,679,961 Total $ 89,043,040 $ 845,930 $ 963,399 $ 2,060,083 $ 92,912,452 December 31, 2020 Commercial, financial, leasing, etc. $ 27,196,862 $ 60,822 $ 10,053 $ 306,827 $ 27,574,564 Real estate: Commercial 26,688,515 168,917 47,014 775,894 27,680,340 Residential builder and developer 1,246,095 1,693 856 1,094 1,249,738 Other commercial construction 8,523,591 66,365 3,816 114,039 8,707,811 Residential 13,764,836 200,406 792,888 365,729 15,123,859 Residential - limited documentation 1,462,277 19,687 - 147,170 1,629,134 Consumer: Home equity lines and loans 3,881,885 24,329 - 79,392 3,985,606 Recreational finance 7,002,643 47,161 - 25,519 7,075,323 Automobile 4,007,349 55,498 - 39,404 4,102,251 Other 1,346,868 17,561 4,581 38,231 1,407,241 Total $ 95,120,921 $ 662,439 $ 859,208 $ 1,893,299 $ 98,535,867 141
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A summary of outstanding loan balances for which COVID-19 related payment
deferrals were in effect as of December 31, 2021 and 2020 is presented in the
following table. These loans meet the criteria described in note 1 and, as such,
are not considered past due or otherwise in default of loan terms as of the
dates presented. Substantially all of those deferrals are scheduled to expire
during 2022 and/or are in the process of formal modification of repayment terms
for previously deferred payments.
COVID-19 Related Payment Deferrals (1)
December 31
2021 2020
(In thousands)
Commercial, financial, leasing, etc. $ - $ 95,823
Real estate: Commercial -
728,511
Residential builder and developer -
653
Other commercial construction - 61,235 Residential (2) 1,126,734 2,447,422 Residential - limited documentation 63,078 337,108 Consumer: Home equity lines and loans 3,419 18,440 Recreational finance 3,286 24,428 Automobile 7,365 51,550 Other 139 2,353 Total $ 1,204,021 $ 3,767,523
(1) Represents accruing loans for which a COVID-19 related payment deferral
(including maturity extensions) was in effect.
(2) Includes $974 million and $1.7 billion of government-guaranteed loans at
December 31, 2021 and 2020, respectively.
During the normal course of business, the Company modifies loans to maximize
recovery efforts. If the borrower is experiencing financial difficulty and a
concession is granted, the Company considers such modifications as troubled debt
restructurings and classifies those loans as either nonaccrual loans or
renegotiated loans. The types of concessions that the Company grants typically
include principal deferrals and interest rate concessions, but may also include
other types of concessions.
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The tables that follow summarize the Company's loan modification activities that
were considered troubled debt restructurings for the years ended December 31,
2021, 2020 and 2019:
Post-modification (a)
Pre-
modification Combination of
Recorded Principal Interest Rate Concession
Year Ended December 31, 2021 Number Investment Deferral Reduction Other Types Total
(Dollars in thousands)
Commercial, financial, leasing, etc. 284 $ 185,458 $
46,806 $ - $ 40,558 $ 95,516 $ 182,880 Real estate: Commercial 99 202,878 67,387 - 31,202 102,248 200,837 Residential builder and developer 1 3 3 - - - 3 Other commercial construction 3 542 532 - - - 532 Residential 373 108,325 95,769 - - 12,866 108,635 Residential - limited documentation 21 2,920 2,865 - - - 2,865 Consumer: Home equity lines and loans 89 6,430 6,054 - - 321 6,375 Recreational finance 281 9,931 9,931 - - - 9,931 Automobile 807 14,668 14,654 - - 14 14,668 Other 362 2,597 2,597 - - - 2,597 Total 2,320 $ 533,752 $ 246,598 $ - $ 71,760 $ 210,965 $ 529,323 Year Ended December 31, 2020
Commercial, financial, leasing, etc. 394 $ 246,479 $
70,671 $ 298 $ 31,605 $ 97,344 $ 199,918 Real estate: Commercial
161 310,578 204,591 505 4,874 85,261 295,231
Residential builder and developer 1 91 - - - 90 90
Other commercial construction 2 13,602 13,573 - - - 13,573
Residential 631 202,985 183,878 - - 23,639 207,517
Residential - limited
documentation 30 7,413 7,100 - - 1,232 8,332
Consumer:
Home equity lines and loans 259 17,228 5,882 - - 11,372 17,254
Recreational finance 428 16,392 16,388 - - 4 16,392
Automobile 2,249 39,951 39,949 - - 2 39,951
Other 1,095 7,788 3,383 - - 4,405 7,788
Total 5,250 $ 862,507 $ 545,415 $ 803 $ 36,479 $ 223,349 $ 806,046
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Post-modification (a)
Pre-
modification Interest
Recorded Principal Rate Combination of
Year Ended December 31, 2019 Number Investment Deferral Reduction Other Concession Types Total
(Dollars in thousands)
Commercial, financial, leasing, etc. 150 $ 63,715
$ 10,485 $ - $ - $ 52,871 $ 63,356 Real estate: Commercial
51 48,315 5,193 - - 26,152 31,345
Residential builder and developer 2 1,330 1,068 - - - 1,068
Other commercial construction 3 1,559 - - - 1,500 1,500
Residential 83 21,695 10,819 - - 11,907 22,726
Residential - limited
documentation 6 1,409 399 - - 1,044 1,443
Consumer:
Home equity lines and loans 41 4,127 176 - - 4,004 4,180
Recreational finance 10 265 265 - - - 265
Automobile 66 1,141 1,076 - - 65 1,141
Total 412 $ 143,556 $ 29,481 $ - $ - $ 97,543 $ 127,024
(a) Financial effects impacting the recorded investment included principal
payments or advances, charge-offs and capitalized escrow arrearages. The
present value of interest rate concessions, discounted at the effective rate
of the original loan, was not material.
Loans that were modified as troubled debt restructurings during the twelve months ended December 31, 2021, 2020 and 2019 and for which there was a subsequent payment default during the respective year were not material. A summary of changes in the accretable yield for loans acquired at a discount for the year ended December 31, 2019 follows:
2019
Purchased Other
Impaired Acquired
(In thousands)
Balance at beginning of period $ 147,210 $ 96,907
Interest income (49,017 ) (36,452 )
Reclassifications from
nonaccretable balance 36,718 15,534
Other (a) - (3,909 )
Balance at end of period $ 134,911 $ 72,080
(a) Other changes in expected cash flows including changes in interest rates and
prepayment assumptions.
The Company's loan and lease portfolio includes commercial lease financing
receivables consisting of direct financing and leveraged leases for machinery
and equipment, railroad equipment, commercial trucks and trailers, and aircraft.
Certain leases contain payment schedules that are tied to variable interest rate
indices. In general, early termination options are provided if the lessee is not
in default, returns the leased equipment and pays an early termination fee.
Additionally, options to
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--------------------------------------------------------------------------------purchase the underlying asset by the lessee are generally at the fair market value of the equipment. A summary of lease financing receivables follows:
December 31,
2021 2020
(In thousands)
Commercial leases:
Direct financings:
Lease payments receivable $ 873,089 $ 1,017,222
Estimated residual value of leased assets 75,140 79,621
Unearned income (68,456 ) (83,673 ) Investment in direct financings 879,773
1,013,170
Leveraged leases: Lease payments receivable 75,003
76,453
Estimated residual value of leased assets 73,414
73,600
Unearned income (25,374 ) (28,388 ) Investment in leveraged leases 123,043
121,665
Total investment in leases $ 1,002,816 $
1,134,835
Deferred taxes payable arising from leveraged leases $ 56,759 $ 61,905
Included within the estimated residual value of leased assets at December 31,
2021 and 2020 were $29 million and $34 million, respectively, in residual value
associated with direct financing leases that are guaranteed by the lessees or
others.
At December 31, 2021, the minimum future lease payments to be received from
lease financings were as follows:
(In thousands)
Year ending December 31:
2022 $ 282,388
2023 247,084
2024 171,176
2025 107,998
2026 67,528
Later years 71,918
$ 948,092
5. Allowance for credit losses
Effective January 1, 2020 the Company adopted amended accounting guidance which
requires an allowance for credit losses be deducted from the amortized cost
basis of financial assets to present the net carrying value at the amount that
is expected to be collected over the contractual term of the asset considering
relevant information about past events, current conditions, and reasonable and
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supportable forecasts that affect the collectability of the reported amount. The
new guidance replaced the previous incurred loss model for determining the
allowance for credit losses.
Changes in the allowance for credit losses for the years ended December 31,
2021, 2020 and 2019 were as follows:
Commercial,
Financial, Real Estate
Leasing, etc. Commercial Residential Consumer Unallocated Total
(In thousands)
2021
Beginning balance $ 405,846 $ 670,719 $ 103,590 $ 556,232 $ - $ 1,736,387
Provision for credit losses (40,378 ) (42,825 ) (29,817 ) 38,020 - (75,000 )
Net charge-offs
Charge-offs (122,651 ) (101,306 ) (10,904 ) (103,293 ) - (338,154 )
Recoveries 41,082 30,651 8,857 65,403 - 145,993
Net charge-offs (81,569 ) (70,655 ) (2,047 ) (37,890 ) - (192,161 )
Ending balance $ 283,899 $ 557,239 $ 71,726 $ 556,362 $ - $ 1,469,226
2020
Beginning balance $ 366,094 $ 322,201 $ 56,033 $ 229,118 $ 77,625 $ 1,051,071 Adoption of new accounting standard
(61,474 ) 23,656 53,896 194,004 (77,625 ) 132,457
Provision for credit losses 220,544 356,203 (3,172 ) 226,425 - 800,000
Net charge-offs
Charge-offs (135,083 ) (35,891 ) (10,283 ) (152,250 ) - (333,507 )
Recoveries 15,765 4,550 7,116 58,935 - 86,366
Net charge-offs (119,318 ) (31,341 ) (3,167 ) (93,315 ) - (247,141 )
Ending balance $ 405,846 $ 670,719 $ 103,590 $ 556,232 $ - $ 1,736,387
2019
Beginning balance $ 330,055 $ 341,655 $ 69,125 $ 200,564 $ 78,045 $ 1,019,444 Provision for credit losses
69,702 (10,726 ) (8,585 ) 126,029 (420 ) 176,000
Net charge-offs
Charge-offs (58,244 ) (12,664 ) (12,711 ) (154,089 ) - (237,708 )
Recoveries 24,581 3,936 8,204 56,614 - 93,335
Net charge-offs (33,663 ) (8,728 ) (4,507 ) (97,475 ) - (144,373 )
Ending balance $ 366,094 $ 322,201 $ 56,033 $ 229,118 $ 77,625 $ 1,051,071
Despite the allocation in the preceding tables, the allowance for credit losses
is general in nature and is available to absorb losses from any loan or lease
type. Changes in the amount of the allowance for credit losses reflect the
outcome of the procedures described herein.
For purposes of determining the level of the allowance for credit losses, the
Company evaluates its loan and lease portfolio by type. Accruing loans with
similar risk characteristics are generally evaluated collectively. In
establishing the allowance for credit losses subsequent to December 31, 2019,
the Company utilizes statistically developed models to project principal
balances over the remaining contractual lives of the loan portfolios and to
determine estimated credit losses through a reasonable and supportable forecast
period. Individual loan credit quality indicators, including loan grade and
borrower repayment performance, can inform the models, which have been
statistically developed based on historical correlations of credit losses with
prevailing economic metrics, including unemployment, gross domestic product and
real estate prices. Model forecasts may be adjusted for inherent limitations or
biases that have been identified through independent validation and back-testing
of model performance to actual realized results. At both December 31, 2021 and
2020, the Company utilized a reasonable and supportable forecast period of two
years. Subsequent to
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this forecast period the Company reverted, ratably over a one-year period, to
historical loss experience to inform its estimate of losses for the remaining
contractual life of each portfolio. The Company also considered the impact of
portfolio concentrations, changes in underwriting practices, product expansions
into new markets, imprecision in its economic forecasts, geopolitical conditions
and other risk factors that might influence its loss estimation process. Prior
to 2020, the allowance for credit losses was estimated for incurred credit
losses inherent in the loan and lease portfolio as of the balance sheet date,
but did not consider reasonable and supportable forecasts that could have
affected the collectability of the reported amounts.
The Company also estimates losses attributable to specific troubled credits. The
amounts of specific loss components in the Company's loan and lease portfolios
are determined through a loan-by-loan analysis of larger balance commercial
loans and commercial real estate loans that are in nonaccrual status. Such loss
estimates are typically based on expected future cash flows, collateral values
and other factors that may impact the borrower's ability to pay. To the extent
that those loans are collateral-dependent, they are evaluated based on the fair
value of the loan's collateral as estimated at or near the financial statement
date. As the quality of a loan deteriorates to the point of classifying the loan
as "criticized," the process of obtaining updated collateral valuation
information is usually initiated, unless it is not considered warranted given
factors such as the relative size of the loan, the characteristics of the
collateral or the age of the last valuation. In those cases where current
appraisals may not yet be available, prior appraisals are utilized with
adjustments, as deemed necessary, for estimates of subsequent declines in values
as determined by line of business and/or loan workout personnel. Those
adjustments are reviewed and assessed for reasonableness by the Company's credit
department. Accordingly, for real estate collateral securing larger nonaccrual
commercial loans and commercial real estate loans, estimated collateral values
are based on current appraisals and estimates of value. For non-real estate
loans, collateral is assigned a discounted estimated liquidation value and,
depending on the nature of the collateral, is verified through field exams or
other procedures. In assessing collateral, real estate and non-real estate
values are reduced by an estimate of selling costs.
For residential real estate loans, including home equity loans and lines of
credit, the excess of the loan balance over the net realizable value of the
property collateralizing the loan is charged-off when the loan becomes 150 days
delinquent. That charge-off is based on recent indications of value from
external parties that are generally obtained shortly after a loan becomes
nonaccrual. Loans to consumers that file for bankruptcy are generally
charged-off to estimated net collateral value shortly after the Company is
notified of such filings. When evaluating individual home equity loans and lines
of credit for charge off and for purposes of estimating losses in determining
the allowance for credit losses, the Company gives consideration to the required
repayment of any first lien positions related to collateral property. Modified
loans, including smaller balance homogenous loans, that are considered to be
troubled debt restructurings are evaluated for impairment giving consideration
to the impact of the modified loan terms on the present value of the loan's
expected cash flows.
147
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Information with respect to loans and leases that were considered nonaccrual at
the beginning and end of the reporting period and the interest income recognized
on such loans for the years ended December 31, 2021, 2020 and 2019 follows.
Year Ended
December 31,
December 31, 2021 January 1, 2021 2021
Amortized Amortized Interest
Cost with Cost without Income
Allowance Allowance Total Amortized Cost Recognized
(In thousands)
Commercial, financial, leasing, etc. $ 110,790 $ 110,232
$ 221,022 $ 306,827 $ 11,865 Real estate: Commercial
242,078 827,202 1,069,280 775,894 15,872
Residential builder and developer 613 2,392 3,005 1,094 973
Other commercial construction 30,229 81,176 111,405 114,039 596
Residential 198,560 157,298 355,858 365,729 23,772
Residential - limited documentation 79,777 43,111 122,888 147,170 528
Consumer:
Home equity lines and loans 32,269 38,219 70,488 79,392 3,780
Recreational finance 21,476 6,335 27,811 25,519 637
Automobile 29,314 4,723 34,037 39,404 186
Other 44,122 167 44,289 38,231 531
Total $ 789,228 $ 1,270,855 $ 2,060,083 $ 1,893,299 $ 58,740
Year Ended
December 31,
December 31, 2020 January 1, 2020 2020
Amortized Amortized
Cost with Cost without Interest Income
Allowance Allowance Total Amortized Cost Recognized
(In thousands)
Commercial, financial, leasing, etc. $ 226,897 $ 79,930
$ 306,827 $ 346,743 $ 11,269 Real estate: Commercial
364,110 411,784 775,894 173,796 7,821
Residential builder and developer 1,094 - 1,094 4,708 1,694
Other commercial construction 20,992 93,047 114,039 35,881 8,457
Residential 159,006 206,723 365,729 322,504 18,069
Residential - limited documentation 84,568 62,602 147,170 114,667 634
Consumer:
Home equity lines and loans 61,031 18,361 79,392 65,039 4,092
Recreational finance 19,434 6,085 25,519 14,308 626
Automobile 34,044 5,360 39,404 21,293 186
Other 3,606 34,625 38,231 35,394 1,369
Total $ 974,782 $ 918,517 $ 1,893,299 $ 1,134,333 $ 54,217
148--------------------------------------------------------------------------------
Year Ended
January 1, December 31,
December 31, 2019 2019 2019
Amortized Amortized
Cost with Cost without Amortized Interest Income
Allowance Allowance Total Cost Recognized
(In thousands)
Commercial, financial, leasing, etc. $ 206,644 $ 139,913
$ 346,557 $ 234,423 $ 8,960
Real estate:
Commercial 40,847 117,627 158,474 203,672 5,850
Residential builder and developer 604 3,378 3,982 4,798 357
Other commercial construction 12,425 20,345 32,770 22,205 634
Residential 59,982 175,681 235,663 233,352 12,630
Residential - limited documentation 26,710 56,717 83,427 84,685 1,092
Consumer:
Home equity lines and loans 24,812 38,403 63,215 71,292 5,987
Recreational finance 9,054 5,165 14,219 11,199 575
Automobile 14,805 6,488 21,293 23,359 214
Other 3,391 121 3,512 4,623 508
Total $ 399,274 $ 563,838 $ 963,112 $ 893,608 $ 36,807
The Company utilizes a loan grading system to differentiate risk amongst its
commercial loans and commercial real estate loans. Loans with a lower
expectation of default are assigned one of ten possible "pass" loan grades and
are generally ascribed lower loss factors when determining the allowance for
credit losses. Loans with an elevated level of credit risk are classified as
"criticized" and are ascribed a higher loss factor when determining the
allowance for credit losses. Criticized loans may be classified as "nonaccrual"
if the Company no longer expects to collect all amounts according to the
contractual terms of the loan agreement or the loan is delinquent 90 days or
more.
Loan officers in different geographic locations with the support of the
Company's credit department personnel review and reassign loan grades based on
their detailed knowledge of individual borrowers and their judgment of the
impact on such borrowers resulting from changing conditions in their respective
regions. Factors considered in assigning loan grades include borrower-specific
information related to expected future cash flows and operating results,
collateral values, geographic location, financial condition and performance,
payment status, and other information. The Company's policy is that, at least
annually, updated financial information be obtained from commercial borrowers
associated with pass grade loans and additional analysis is performed. On a
quarterly basis, the Company's centralized credit department reviews all
criticized commercial loans and commercial real estate loans greater than $1
million to determine the appropriateness of the assigned loan grade, including
whether the loan should be reported as accruing or nonaccruing.
149
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The following table summarizes the loan grades applied at December 31, 2021 to
the various classes of the Company's commercial loans and commercial real estate
loans by origination year.
Revolving
Loans
Converted to
Term Loans by Origination Year
Revolving Term
2021 2020 2019 2018 2017 Prior Loans Loans Total
(In thousands)Commercial, financial, leasing, etc.:
Loan grades:
Pass $ 4,798,052 1,916,072 1,476,786 951,881 500,615 1,398,775 10,993,461 18,699 $ 22,054,341
Criticized accrual 196,680 98,595 107,010 73,126 36,232 185,935 484,755 15,628 1,197,961
Criticized nonaccrual 19,462 23,229 17,114 39,908 20,927 33,698
60,175 6,509 221,022
Total commercial,
financial, leasing, etc. $ 5,014,194
2,037,896 1,600,910 1,064,915 557,774 1,618,408
11,538,391 40,836 $ 23,473,324
Real estate:
Commercial:
Loan grades:
Pass $ 3,413,587 2,662,999 3,682,178 2,648,388 2,076,155 5,232,790 728,948 - $ 20,445,045
Criticized accrual 133,133 480,146 685,701 1,068,552 468,530 1,743,798 38,570 - 4,618,430
Criticized nonaccrual 21,587 133,560 195,084 83,857 76,628 520,473 38,091 - 1,069,280
Total commercial real
estate $ 3,568,307 3,276,705 4,562,963 3,800,797 2,621,313 7,497,061 805,609 - $ 26,132,755
Residential builder and developer:
Loan grades:
Pass $ 786,983 106,510 75,287 47,587 4,680 12,450 230,017 - $ 1,263,514
Criticized accrual 2,055 5,356 117,258 13,637 630 - 891 - 139,827
Criticized nonaccrual - - 2,910 - - 95 - - 3,005
Total residential builder
and developer $ 789,038 111,866 195,455 61,224 5,310 12,545 230,908 - $ 1,406,346
Other commercial construction:
Loan grades:
Pass $ 957,947 1,781,603 2,022,276 832,547 152,669 273,556 38,781 - $ 6,059,379
Criticized accrual 24,103 54,191 675,226 583,428 228,739 114,158 - - 1,679,845
Criticized nonaccrual - - 71,613 3,303 12,263 19,970 4,256 - 111,405
Total other commercial
construction $ 982,050 1,835,794 2,769,115 1,419,278 393,671 407,684 43,037 - $ 7,850,629
Increases to criticized loans during 2021 were predominantly attributable to effects of the COVID-19 pandemic and the related re-grading of loans.
150
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The Company considers repayment performance a significant indicator of credit
quality for its residential real estate loan and consumer loan portfolios. A
summary of loans in accrual and nonaccrual status at December 31, 2021 for the
various classes of the Company's residential real estate loans and consumer
loans by origination year is as follows.
Revolving
Loans
Converted to
Term Loans by Origination Year Revolving Term
2021 2020 2019 2018 2017 Prior Loans Loans Total
(In thousands)
Residential:
Current $ 3,057,118 1,672,090 1,075,896 466,040 1,037,958 5,913,461 72,309 - $ 13,294,872
30-89 days past due 15,245 12,535 9,886 6,132 33,097 162,666 - - 239,561
Accruing loans past due 90
days or more 10,924 100,581 28,512 31,996 205,318 542,749 - - 920,080
Nonaccrual 3,359 19,858 7,119 4,577 5,890 314,792 263 - 355,858
Total residential $ 3,086,646 1,805,064 1,121,413 508,745 1,282,263 6,933,668 72,572
- $ 14,810,371
Residential - limited documentation:
Current $ - - - - - 1,124,520 - - $ 1,124,520
30-89 days past due - - - - - 16,666 - - 16,666
Accruing loans past due 90
days or more - - - - - - - - -
Nonaccrual - - - - - 122,888 - - 122,888Total residential - limited
documentation $ - - - - - 1,264,074 - - $ 1,264,074
Consumer:
Home equity lines and loans:
Current $ 304 777 2,793 1,730 1,944 38,015 2,348,279 1,082,775 $ 3,476,617
30-89 days past due - - - 21 - 698 346 14,421 15,486
Accruing loans past due 90
days or more - - - - - - - - -
Nonaccrual - - - - - 5,750 4,951 59,787 70,488
Total home equity lines and loans $ 304 777 2,793 1,751 1,944 44,463 2,353,576 1,156,983 $ 3,562,591
151--------------------------------------------------------------------------------
Revolving
Loans
Converted to
Term Loans by Origination Year
Revolving Term
2021 2020 2019 2018 2017 Prior Loans Loans Total
(In thousands)Recreational finance:
Current $ 2,890,111
2,088,342 1,267,929 646,883 445,868 646,040
- - $ 7,985,173
30-89 days past due 5,929 8,912 8,317 5,074 5,189 7,123 - - 40,544
Accruing loans past due
90 days or more - - - - - - - - -
Nonaccrual 1,341 4,646 4,871 4,918 4,039 7,996 - - 27,811
Total recreational finance $ 2,897,381 2,101,900 1,281,117 656,875 455,096 661,159 - - $ 8,053,528
Automobile:
Current $ 2,220,061 1,097,684 662,000 341,655 211,774 71,598 - - $ 4,604,772
30-89 days past due 8,508 6,615 8,936 7,161 5,715 3,129 - - 40,064
Accruing loans past due
90 days or more - - - - - - - - -
Nonaccrual 1,588 4,390 7,847 7,867 6,882 5,463 - - 34,037
Total automobile $ 2,230,157 1,108,689 678,783 356,683 224,371 80,190 - - $ 4,678,873
Other:
Current $ 244,346 96,945 73,586 24,424 16,924 14,321 1,148,096 1,505 $ 1,620,147
30-89 days past due 2,937 404 472 255 101 5,712 1,908 434 12,223
Accruing loans past due
90 days or more - - - - - 3,302 - - 3,302
Nonaccrual 2,051 326 326 193 104 353 40,807 129 44,289
Total other $ 249,334 97,675 74,384 24,872 17,129 23,688 1,190,811 2,068 $ 1,679,961
Total loans and leases at
December 31, 2021 $ 18,817,411 12,376,366 12,286,933 7,895,140 5,558,871 18,542,940 16,234,904 1,199,887 $ 92,912,452
152
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The following tables summarizes the loan grades applied at December 31, 2020 to
the various classes of the Company's commercial loans and commercial real estate
loans by origination year.
Revolving
Loans
Converted to
Term Loans by Origination Year
Revolving Term
2020 2019 2018 2017 2016 Prior Loans Loans Total
(In thousands)Commercial, financial, leasing, etc.:
Loan grades:
Pass $ 7,732,728 2,277,233 1,505,486 930,834 719,796 1,387,695 11,352,416 21,286 $ 25,927,474
Criticized accrual 388,326 84,358 113,940 41,587 39,930 73,401 584,751 13,970 1,340,263
Criticized nonaccrual 7,720 27,309 56,227 16,808 19,681 45,471
125,893 7,718 306,827
Total commercial,
financial, leasing, etc. $ 8,128,774
2,388,900 1,675,653 989,229 779,407 1,506,567
12,063,060 42,974 $ 27,574,564
Real estate:
Commercial:
Loan grades:
Pass $ 3,353,450 4,681,834 3,299,095 2,628,061 2,746,165 5,698,834 875,348 - $ 23,282,787
Criticized accrual 526,037 400,154 579,507 290,885 568,144 1,212,672 44,260 - 3,621,659
Criticized nonaccrual 26,876 121,899 47,144 99,293 197,319 248,949 34,414 - 775,894
Total commercial real
estate $ 3,906,363 5,203,887 3,925,746 3,018,239 3,511,628 7,160,455 954,022 - $ 27,680,340
Residential builder and developer:
Loan grades:
Pass $ 506,295 223,880 109,453 15,048 10,976 11,320 236,943 - $ 1,113,915
Criticized accrual 3,690 106,847 14,836 3,421 - 1,885 4,050 - 134,729
Criticized nonaccrual - 518 - - - 576 - - 1,094
Total residential builder
and developer $ 509,985 331,245 124,289 18,469 10,976 13,781 240,993 - $ 1,249,738
Other commercial construction:
Loan grades:
Pass $ 1,050,258 2,998,921 2,048,063 945,339 233,127 294,030 74,611 - $ 7,644,349
Criticized accrual 37,192 148,492 381,091 225,949 144,665 12,034 - - 949,423
Criticized nonaccrual 335 65,592 13,522 4,213 12,097 12,873 5,407 - 114,039
Total other commercial
construction $ 1,087,785 3,213,005 2,442,676 1,175,501 389,889 318,937 80,018 - $ 8,707,811
153--------------------------------------------------------------------------------
A summary of loans in accrual and nonaccrual status at December 31, 2020 for the various classes of the Company's residential real estate loans and consumer loans by origination year follows.
Revolving
Loans
Converted to
Term Loans by Origination Year Revolving Term
2020 2019 2018 2017 2016 Prior Loans Loans Total
(In thousands)
Residential:
Current $ 2,722,862 1,416,259 618,736 1,318,094 718,235 6,898,756 71,894 - $ 13,764,836
30-89 days past due 13,496 7,781 7,258 13,477 7,947 150,447 - - 200,406
Accruing loans past due
90 days or more 579 15,234 38,145 212,818 45,804 480,308 - - 792,888
Nonaccrual 3,133 14,439 5,183 6,408 2,900 333,466 200 - 365,729
Total residential $ 2,740,070 1,453,713 669,322 1,550,797 774,886 7,862,977 72,094 - $ 15,123,859
Residential - limited documentation:
Current $ - - - - - 1,462,277 - - $ 1,462,277
30-89 days past due - - - - - 19,687 - - 19,687
Accruing loans past due
90 days or more - - - - - - - - -
Nonaccrual - - - - - 147,170 - - 147,170
Total residential - limited
documentation $ - - - - - 1,629,134 - - $ 1,629,134
Consumer:
Home equity lines and loans:
Current $ 773 3,983 1,591 2,016 162 51,554 2,569,621 1,252,185 $ 3,881,885
30-89 days past due - - - - - 1,148 939 22,242 24,329
Accruing loans past due
90 days or more - - - - - - - - -
Nonaccrual - - - - - 6,148 5,752 67,492 79,392
Total home equity lines and loans $ 773 3,983 1,591 2,016 162 58,850 2,576,312 1,341,919 $ 3,985,606
154
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Revolving
Loans
Converted to
Term Loans by Origination Year Revolving Term
2020 2019 2018 2017 2016 Prior Loans Loans Total
(In thousands)
Recreational finance:
Current $ 2,796,359 1,751,766 907,595 630,151 352,414 564,358 - - $ 7,002,643
30-89 days past due 9,548 11,255 8,519 6,638 2,938 8,263 - - 47,161
Accruing loans past due
90 days or more - - - - - - - - -
Nonaccrual 1,854 3,883 4,072 4,194 2,733 8,783 - - 25,519
Total recreational finance $ 2,807,761 1,766,904 920,186 640,983 358,085 581,404 - - $ 7,075,323
Automobile:
Current $ 1,595,636 1,106,782 629,338 440,604 171,017 63,972 - - $ 4,007,349
30-89 days past due 6,461 14,140 12,542 12,899 6,373 3,083 - - 55,498
Accruing loans past due
90 days or more - - - - - - - - -
Nonaccrual 1,615 7,144 10,788 10,061 5,991 3,805 - - 39,404
Total automobile $ 1,603,712 1,128,066 652,668 463,564 183,381 70,860 - - $ 4,102,251
Other:
Current $ 160,424 137,617 53,702 32,556 4,526 28,970 927,217 1,856 $ 1,346,868
30-89 days past due 1,879 1,130 577 2,301 42 557 10,594 481 17,561
Accruing loans past due
90 days or more - - - - - 374 4,207 - 4,581
Nonaccrual 1,493 492 339 183 31 501 35,044 148 38,231
Total other $ 163,796 139,239 54,618 35,040 4,599 30,402 977,062 2,485 $ 1,407,241
Total loans and leases at
December 31, 2020 $ 20,949,019 15,628,942 10,466,749 7,893,838 6,013,013 19,233,367 16,963,561 1,387,378 $ 98,535,867
The Company's reserve for off-balance sheet credit exposures was not material at December 31, 2021 and December 31, 2020.
6. Premises and equipment
The detail of premises and equipment was as follows:
December 31
2021 2020
(In thousands)
Land $ 93,862 $ 94,929
Buildings 512,988 513,290
Leasehold improvements 304,825 302,246
Furniture and equipment - owned 880,153 807,701
Furniture and equipment - capital leases 115
8,630
1,791,943 1,726,796
Less: accumulated depreciation and amortization
Owned assets 1,026,842 971,979
Capital leases 38 5,933
1,026,880 977,912
Right of use assets - operating leases 379,702 412,674
Premises and equipment, net $ 1,144,765 $ 1,161,558
155
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The right-of-use assets and lease liabilities relate to banking offices and
other space occupied by the Company and use of certain equipment under
noncancelable operating lease agreements. As of December 31, 2021 and 2020, the
Company recognized $431 million and $467 million respectively, of operating
lease liabilities as a component of "accrued interest and other liabilities" in
the consolidated balance sheet. In calculating the present value of lease
payments, the Company utilized its incremental secured borrowing rate based on
lease term.
The Company's noncancelable operating lease agreements expire at various dates
over the next 20 years. Real estate leases generally consist of fixed monthly
rental payments with certain leases containing escalation clauses. Any variable
lease payments or payments for nonlease components are recognized in the
consolidated statement of income as a component of "equipment and net occupancy"
expense based on actual costs incurred. Some leases contain lessee options to
extend the term. Those options are included in the lease term when it is
determined that it is reasonably certain the option will be exercised.
The Company has noncancelable operating lease agreements for certain equipment
related to ATMs, servers, printers and mail machines that are used in the normal
course of operations. The ATM leases are either based on the rights to a
specific square footage or a license agreement whereby the Company has the right
to operate an ATM in a landlord's location. The lease terms generally contain
both fixed payments and variable payments that are transaction-based. Given the
transaction-based nature of the variable payments, such payments are excluded
from the measurement of the right-of-use asset and lease liability and are
recognized in the consolidated statement of income as a component of "equipment
and net occupancy" expense when incurred.
The following table presents information about the Company's lease costs for
operating leases recorded in the consolidated balance sheet, cash paid toward
lease liabilities, and the weighted-average remaining term and discount rates of
the operating leases.
Year Ended December 31,
2021 2020 2019
(Dollars in thousands)
Lease cost
Operating lease cost $ 101,353 $ 104,158 $ 100,669
Short-term lease cost 111 198 105
Variable lease cost 4,103 1,565 2,332
Total lease cost $ 105,567 $ 105,921 $ 103,106
Other information
Right-of-use assets obtained in exchange for
new operating lease liabilities $ 57,760 $ 70,754 $ 132,219
Cash paid toward lease liabilities 106,586 104,396 101,869
Weighted-average remaining lease term 6 years 7 years 7 years
Weighted-average discount rate 2.51 % 2.74 % 3.01 %
156--------------------------------------------------------------------------------
Minimum lease payments under noncancelable operating leases are summarized in the following table.
(In thousands)
Year ending December 31:
2022 $ 102,417
2023 86,467
2024 71,321
2025 56,413
2026 42,634
Later years 107,652
Total lease payments 466,904
Less: imputed interest 35,792
Total $ 431,112
All other operating leasing activities were not material to the Company's consolidated results of operations. Minimum lease payments required under capital leases are not material.
7. Capitalized servicing assets
Changes in capitalized servicing assets were as follows:
Residential Mortgage Loans Commercial Mortgage Loans
For the Year Ended December 31, 2021 2020 2019 2021 2020 2019
(In thousands)
Beginning balance $ 231,204 $ 244,411 $ 120,509 $ 133,429 $ 130,636 $ 114,663
Originations 65,723 45,101 26,067 33,068 29,306 41,370
Purchases - - 144,326 - - -
Amortization (55,874 ) (58,308 ) (46,491 ) (33,893 ) (26,513 ) (25,397 )
241,053 231,204 244,411 132,604 133,429 130,636
Valuation allowance (24,000 ) (30,000 ) (7,000 ) - - -
Ending balance, net $ 217,053 $ 201,204 $ 237,411 $ 132,604 $ 133,429 $ 130,636
Residential mortgage loans serviced for others were $23.2 billion at
December 31, 2021, $26.3 billion at December 31, 2020 and $32.3 billion at
December 31, 2019. Excluded from residential mortgage loans serviced for others
were loans sub-serviced for others of $74.7 billion, $68.1 billion and $62.8
billion at December 31, 2021, 2020, and 2019, respectively. In January 2019, the
Company purchased servicing rights for residential real estate loans that had
outstanding principal balances at that date of approximately $13.3 billion. The
purchase price of such servicing rights was approximately $144 million.
Commercial mortgage loans serviced for others were $20.2 billion at December 31,
2021, $18.9 billion at December 31, 2020 and $17.6 billion at December 31,
2019. Excluded from commercial mortgage loans serviced for others were loans
sub-serviced for others of $3.5 billion at December 31, 2021, $3.3 billion at
December 31, 2020 and $3.4 billion at December 31, 2019.
The estimated fair value of capitalized residential mortgage loan servicing
assets was approximately $257 million at December 31, 2021 and $240 million at
December 31, 2020. The fair value of capitalized residential mortgage loan
servicing assets was estimated using weighted-average discount rates of 9.8% and
9.4% at December 31, 2021 and 2020, respectively, and contemporaneous prepayment
assumptions that vary by loan type. At December 31, 2021 and 2020, the discount
rate
157
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represented a weighted-average option-adjusted spread ("OAS") of 894 basis
points (hundredths of one percent) and 918 basis points, respectively, over
market implied forward London Interbank Offered Rates ("LIBOR"). The estimated
fair value of capitalized residential mortgage loan servicing rights may vary
significantly in subsequent periods due to changing interest rates and the
effect thereof on prepayment speeds. The estimated fair value of capitalized
commercial mortgage loan servicing assets was approximately $160 million at each
of December 31, 2021 and 2020. An 18% discount rate was used to estimate the
fair value of capitalized commercial mortgage loan servicing rights at
December 31, 2021 and 2020 with no prepayment assumptions because, in general,
the servicing agreements allow the Company to share in customer loan prepayment
fees and thereby recover the remaining carrying value of the capitalized
servicing rights associated with such loan. The Company's ability to realize the
carrying value of capitalized commercial mortgage servicing rights is more
dependent on the borrowers' abilities to repay the underlying loans than on
prepayments or changes in interest rates.
The key economic assumptions used to determine the fair value of significant
portfolios of capitalized servicing rights at December 31, 2021 and the
sensitivity of such value to changes in those assumptions are summarized in the
table that follows. Those calculated sensitivities are hypothetical and actual
changes in the fair value of capitalized servicing rights may differ
significantly from the amounts presented herein. The effect of a variation in a
particular assumption on the fair value of the servicing rights is calculated
without changing any other assumption. In reality, changes in one factor may
result in changes in another which may magnify or counteract the sensitivities.
The changes in assumptions are presumed to be instantaneous.
Residential Commercial
(Dollars in thousands)
Weighted-average prepayment speeds 12.92 %
Impact on fair value of 10% adverse change $ (13,587 ) Impact on fair value of 20% adverse change (26,047 ) Weighted-average OAS
8.94 %
Impact on fair value of 10% adverse change $ (7,621 ) Impact on fair value of 20% adverse change (14,786 ) Weighted-average discount rate
18.00 %
Impact on fair value of 10% adverse change $ (6,892 )
Impact on fair value of 20% adverse change (13,306 )
8. Goodwill and other intangible assets The Company does not amortize goodwill, however, core deposit and other intangible assets are amortized over the estimated life of each respective asset. A summary of total amortizing intangible assets follows.
158
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Gross Carrying Accumulated Net Carrying
Amount Amortization Amount
(In thousands)
December 31, 2021
Core deposit $ 131,664 $ 127,746 $ 3,918
Other 6,757 6,677 80
Total $ 138,421 $ 134,423 $ 3,998
December 31, 2020
Core deposit $ 131,664 $ 119,125 $ 12,539
Other 6,757 5,131 1,626
Total $ 138,421 $ 124,256 $ 14,165
Amortization of core deposit and other intangible assets was generally computed
using accelerated methods over original amortization periods of three to seven
years. The weighted-average original amortization period was approximately seven
years. Amortization expense for core deposit and other intangible assets was $10
million, $15 million and $19 million for the years ended December 31, 2021, 2020
and 2019, respectively. Estimated amortization expense in 2022 for such
intangible assets is $4 million.
The Company completed annual goodwill impairment tests as of October 1, 2021,
2020 and 2019. For purposes of testing for impairment, the Company assigned all
recorded goodwill to the reporting units originally intended to benefit from
past business combinations, which has historically been the Company's core
relationship business reporting units. Goodwill was generally assigned based on
the implied fair value of the acquired goodwill applicable to the benefited
reporting units at the time of each respective acquisition. The implied fair
value of the goodwill was determined as the difference between the estimated
incremental overall fair value of the reporting unit and the estimated fair
value of the net assets assigned to the reporting unit as of each respective
acquisition date. To test for goodwill impairment at each evaluation date, the
Company compared the estimated fair value of each of its reporting units to
their respective carrying amounts and certain other assets and liabilities
assigned to the reporting unit, including goodwill and core deposit and other
intangible assets. The methodologies used to estimate fair values of reporting
units as of the acquisition dates and as of the evaluation dates were similar.
For the Company's core customer relationship business reporting units, fair
value was estimated as the present value of the expected future cash flows of
the reporting unit. Based on the results of the goodwill impairment tests, the
Company concluded that the amount of recorded goodwill was not impaired at the
respective testing dates.
A summary of goodwill assigned to each of the Company's reportable segments as
of December 31, 2021 and 2020 for purposes of testing for impairment is as
follows:
(In thousands)
Business Banking $ 864,366
Commercial Banking 1,401,873
Commercial Real Estate 654,389
Discretionary Portfolio -
Residential Mortgage Banking -
Retail Banking 1,309,191
All Other 363,293
Total $ 4,593,112
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9. Borrowings
The amounts and interest rates of short-term borrowings were as follows:
Federal Funds
Purchased
and Other
Repurchase Short-term
Agreements Borrowings Total
(Dollars in thousands)
At December 31, 2021
Amount outstanding $ 47,046 $ - $ 47,046
Weighted-average interest rate 0.01 % - 0.01 %
For the year ended December 31, 2021
Highest amount at a month-end $ 103,548 $ -
Daily-average amount outstanding 68,073 - $ 68,073
Weighted-average interest rate 0.01 % - 0.01 %
At December 31, 2020
Amount outstanding $ 59,482 $ - $ 59,482
Weighted-average interest rate 0.01 % - 0.01 %
For the year ended December 31, 2020
Highest amount at a month-end $ 82,893 $ -
Daily-average amount outstanding 61,551 - $ 61,551
Weighted-average interest rate 0.05 % - 0.05 %
At December 31, 2019
Amount outstanding $ 62,363 $ - $ 62,363
Weighted-average interest rate 0.14 % - 0.14 %
For the year ended December 31, 2019
Highest amount at a month-end $ 3,402,566 $ 5,000,000
Daily-average amount outstanding 260,322 799,068 $ 1,059,390
Weighted-average interest rate 1.86 % 2.49 % 2.34 %
Short-term borrowings have a stated maturity of one year or less at the date the
Company enters into the obligation. In general, short-term borrowings
outstanding at December 31, 2021 matured on the next business day following
year-end.
At December 31, 2021, M&T Bank had lines of credit under formal agreements as
follows:
(In thousands)
Outstanding borrowings $ 1,578
Unused 30,065,461
At December 31, 2021, M&T Bank had borrowing facilities available with the FHLBs
whereby M&T Bank could borrow up to approximately $16.2 billion. Additionally,
M&T Bank had an available line of credit with the Federal Reserve Bank of New
York totaling approximately
$13.8 billion at December 31, 2021. M&T Bank is required to pledge loans and
investment securities as collateral for these borrowing facilities.
160
--------------------------------------------------------------------------------Long-term borrowings were as follows:
December 31,
2021 2020
(In thousands)
Senior notes of M&T:
Variable rate due 2023 $ 249,893 $ 249,824
3.55% due 2023 516,173 533,369
Senior notes of M&T Bank:
Variable rate due 2021 - 349,992
Variable rate due 2022 249,961 249,858
2.50% due 2022 653,903 664,400
2.90% due 2025 749,740 749,656
Advances from FHLB:
Fixed rates 1,578 1,683
Subordinated notes of M&T Bank:
Variable rate due 2021 - 500,000
3.40% due 2027 522,867
552,194
Junior subordinated debentures of M&T associated with
preferred capital securities: Fixed rates: BSB Capital Trust I - 8.125%, due 2028 15,775
15,752
Provident Trust I - 8.29%, due 2028 30,103
29,099
Southern Financial Statutory Trust I - 10.60%, due 2030 6,912
6,836
Variable rates: First Maryland Capital I - due 2027 148,945
148,409
First Maryland Capital II - due 2027 151,270
150,606
Allfirst Asset Trust - due 2029 97,220
97,075
BSB Capital Trust III - due 2033 15,464
15,464
Provident Statutory Trust III - due 2033 57,547
56,641
Southern Financial Capital Trust III - due 2033 8,448 8,338
Other 9,570 2,997
$ 3,485,369 $ 4,382,193
The variable rate notes of M&T pay interest quarterly at a rate that is indexed
to the three-month LIBOR. The contractual interest rates for those notes were
.81% at December 31, 2021 and .90% at December 31, 2020.
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The variable rate senior notes of M&T Bank pay interest quarterly at rates that
are indexed to the three-month LIBOR. The contractual interest rates for those
notes ranged from .61% to .81% at December 31, 2021 and .49% to .83% at
December 31, 2020. The weighted-average contractual interest rate was .71% at
December 31, 2021 and .63% at December 31, 2020.
Long-term fixed rate advances from the FHLB had weighted-average contractual
interest rates of 5.82% at December 31, 2021 and December 31, 2020. Advances
from the FHLB outstanding at December 31, 2021 mature in 2029 and 2035 and are
secured by residential real estate loans, commercial real estate loans and
investment securities.
The subordinated notes of M&T Bank are unsecured and are subordinate to the
claims of its other creditors. The notes that were repaid in 2021 paid interest
monthly at a rate that was indexed to the three-month LIBOR. The contractual
interest rate was .87% at December 31, 2020.
The fixed and variable rate junior subordinated deferrable interest debentures
of M&T ("Junior Subordinated Debentures") are held by various trusts and were
issued in connection with the issuance by those trusts of preferred capital
securities ("Capital Securities") and common securities ("Common Securities").
The proceeds from the issuances of the Capital Securities and the Common
Securities were used by the trusts to purchase the Junior Subordinated
Debentures. The Common Securities of each of those trusts are wholly owned by
M&T and are the only class of each trust's securities possessing general voting
powers. The Capital Securities represent preferred undivided interests in the
assets of the corresponding trust. Under the Federal Reserve Board's risk-based
capital guidelines, the Capital Securities qualify for inclusion in Tier 2
regulatory capital. The variable rate Junior Subordinated Debentures pay
interest quarterly at rates that are indexed to the three-month LIBOR. Those
rates ranged from .98% to 3.47% at December 31, 2021 and from 1.06% to 3.59% at
December 31, 2020. The weighted-average variable rates payable on those Junior
Subordinated Debentures were 1.53% at December 31, 2021 and 1.65% at
December 31, 2020.
Holders of the Capital Securities receive preferential cumulative cash
distributions unless M&T exercises its right to extend the payment of interest
on the Junior Subordinated Debentures as allowed by the terms of each such
debenture, in which case payment of distributions on the respective Capital
Securities will be deferred for comparable periods. During an extended interest
period, M&T may not pay dividends or distributions on, or repurchase, redeem or
acquire any shares of its capital stock. In general, the agreements governing
the Capital Securities, in the aggregate, provide a full, irrevocable and
unconditional guarantee by M&T of the payment of distributions on, the
redemption of, and any liquidation distribution with respect to the Capital
Securities. The obligations under such guarantee and the Capital Securities are
subordinate and junior in right of payment to all senior indebtedness of M&T.
The Capital Securities will remain outstanding until the Junior Subordinated
Debentures are repaid at maturity, are redeemed prior to maturity or are
distributed in liquidation to the trusts. The Capital Securities are mandatorily
redeemable in whole, but not in part, upon repayment at the stated maturity
dates (ranging from 2027 to 2033) of the Junior Subordinated Debentures or the
earlier redemption of the Junior Subordinated Debentures in whole upon the
occurrence of one or more events set forth in the indentures relating to the
Capital Securities, and in whole or in part at any time after an optional
redemption prior to contractual maturity contemporaneously with the optional
redemption of the related Junior Subordinated Debentures in whole or in part,
subject to possible regulatory approval.
162
--------------------------------------------------------------------------------Long-term borrowings at December 31, 2021 mature as follows:
(In thousands)
Year ending December 31:
2022 $ 903,864
2023 766,136
2024 9,500
2025 749,740
2026 -
Later years 1,056,129
$ 3,485,369
10. Shareholders' equity
M&T is authorized to issue 1,000,000 shares of preferred stock with a $1.00 par
value per share. Preferred shares outstanding rank senior to common shares both
as to dividends and liquidation preference, but have no general voting rights.
Issued and outstanding preferred stock of M&T as of December 31, 2021 and 2020
is presented below:
December 31, 2021 December 31, 2020
Shares Shares
Issued and Carrying Issued and Carrying
Outstanding Value Outstanding Value
(Dollars in thousands)
Series E (a)
Fixed-to-Floating Rate Non-cumulative Perpetual
Preferred
Stock, $1,000 liquidation preference per
share 350,000 $ 350,000 350,000 $ 350,000
Series F (b)
Fixed-to-Floating Rate Non-cumulative Perpetual
Preferred
Stock, $10,000 liquidation preference per
share 50,000 $ 500,000 50,000 $ 500,000
Series G (c)
Fixed-Rate Reset Non-cumulative Perpetual
Preferred Stock,
$10,000 liquidation preference per share 40,000 $ 400,000 40,000 $ 400,000
Series I (d)
Fixed-Rate Reset Non-cumulative Perpetual
Preferred Stock,
$10,000 liquidation preference per share 50,000 $ 500,000 - $ -
(a) Dividends, if declared, are paid semi-annually at a rate of 6.45% through
February 14, 2024 and thereafter will be paid quarterly at a rate of the
three-month LIBOR plus 361 basis points. The shares are redeemable in whole
or in part on or after February 15, 2024. Notwithstanding M&T's option to
redeem the shares, if an event occurs such that the shares no longer qualify
as Tier 1 capital, M&T may redeem all of the shares within 90 days following
that occurrence. Declared dividends per share were $64.50 in each of 2021,
2020 and 2019.
(b) Dividends, if declared, are paid semi-annually at a rate of 5.125% through
October 31, 2026 and thereafter will be paid quarterly at a rate of the
three-month LIBOR plus 352 basis points. The shares are redeemable in whole
or in part on or after November 1, 2026. Notwithstanding M&T's option to
redeem the shares, if an event occurs such that the shares no longer qualify
as Tier 1 capital, M&T may redeem all of the shares within 90 days following
that occurrence. Declared dividends per share were $512.50 in each of 2021,
2020 and 2019.
(c) Dividends, if declared, are paid semi-annually at a rate of 5.0% through July
31, 2024 and thereafter will be paid semiannually at a rate of the five-year
U.S. Treasury rate plus 3.174%. The shares are redeemable in whole or in part
on or after August 1, 2024. Notwithstanding M&T's option to redeem the
shares, if an event occurs such that the shares no longer qualify as Tier 1
capital, M&T may redeem all of the shares within 90 days following that
occurrence. Declared dividends per share were $500.00 in 2021, $500.694 in
2020 and $125.694 in 2019.
(d) Dividends, if declared, are paid semi-annually at a rate of 3.5% through
August 31, 2026 and thereafter will be paid semiannually at a rate of the
five-year U.S. Treasury rate plus 2.679%. The shares are redeemable in whole
or in part on or after September 1, 2026. Notwithstanding M&T's option to
redeem the shares, if an event occurs such that the shares no longer qualify
as Tier 1 capital, M&T may redeem all of the shares within 90 days following
that occurrence. Dividends declared per share were $94.306 in 2021.
163
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11. Revenue from contracts with customers
The Company generally charges customer accounts or otherwise bills customers
upon completion of its services. Typically the Company's contracts with
customers have a duration of one year or less and payment for services is
received at least annually, but oftentimes more frequently as services are
provided. At December 31, 2021 and 2020, the Company had $68 million and $67
million, respectively, of amounts receivable related to recognized revenue from
the sources in the accompanying tables. Such amounts are classified in "accrued
interest and other assets" in the consolidated balance sheet. In certain
situations the Company is paid in advance of providing services and defers the
recognition of revenue until its service obligation is satisfied. At
December 31, 2021 and 2020, the Company had deferred revenue of $45 million and
$42 million, respectively, related to the sources in the accompanying tables
recorded in "accrued interest and other liabilities" in the consolidated balance
sheet. The following tables summarize sources of the Company's noninterest
income during 2021, 2020, and 2019 that are subject to the revenue recognition
guidance.
Business Commercial Commercial Discretionary Residential Retail
Banking Banking Real Estate Portfolio Mortgage Banking Banking All Other Total Year Ended December 31, 2021
(In thousands)
Classification in consolidated
statement of income
Service charges on deposit accounts $ 53,816 98,880 11,853 - - 232,279 5,285 $ 402,113
Trust income - - - - - - 644,716 644,716
Brokerage services income - - - - - - 62,791 62,791
Other revenues from operations:
Merchant discount and credit card
fees 52,343 55,164 2,661 - - 20,850 387 131,405
Other - 5,968 7,304 1,359 6,166 22,878 39,973 83,648
$ 106,159 160,012 21,818 1,359 6,166 276,007 753,152 $ 1,324,673
Year Ended December 31, 2020
Classification in consolidated
statement of income
Service charges on deposit accounts $ 50,119 92,720 10,252 - - 211,858 5,839 $ 370,788
Trust income 18 442 - - - - 601,424 601,884
Brokerage services income - - - - - - 47,428 47,428
Other revenues from operations:
Merchant discount and credit card
fees 40,475 45,528 2,221 - - 13,481 767 102,472
Other - 9,408 6,218 1,625 4,732 20,813 41,815 84,611
$ 90,612 148,098 18,691 1,625 4,732 246,152 697,273 $ 1,207,183
Year Ended December 31, 2019
Classification in consolidated
statement of income
Service charges on deposit accounts $ 60,690 93,044 9,828 - 4 263,659 5,753 $ 432,978
Trust income 31 963 - - - - 571,614 572,608
Brokerage services income - - - - - - 48,922 48,922
Other revenues from operations:
Merchant discount and credit card
fees 36,844 52,161 2,516 - - 12,140 3,381 107,042
Other - 7,498 8,615 1,776 3,492 36,144 34,088 91,613
$ 97,565 153,666 20,959 1,776 3,496 311,943 663,758 $ 1,253,163
164
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Service charges on deposit accounts include fees deducted directly from customer
account balances, such as account maintenance, insufficient funds and other
transactional service charges, and also include debit card interchange revenue
resulting from customer initiated transactions. Account maintenance charges are
generally recognized as revenue on a monthly basis, whereas other fees are
recognized after the respective service is provided.
Trust income includes fees related to the Institutional Client Services ("ICS")
business and the Wealth Advisory Services ("WAS") business. Revenues from the
ICS business are largely derived from a variety of trustee, agency, investment,
cash management and administrative services, whereas revenues from the WAS
business are mainly derived from asset management, fiduciary services, and
family office services. Trust fees may be billed in arrears or in advance and
are recognized as revenues as the Company's performance obligations are
satisfied. Certain fees are based on a percentage of assets invested or under
management and are recognized as the service is performed and constraints
regarding the uncertainty of the amount of fees are resolved.
Brokerage services income includes revenues from the sale of mutual funds and
annuities and securities brokerage fees. Such revenues are generally recognized
at the time of transaction execution. Mutual fund and other distribution fees
are recognized upon initial placement of customer funds as well as in future
periods as such customers continue to hold amounts in those mutual funds.
Other revenues from operations include merchant discount and credit card fees
that are generally recognized when the cardholder's transaction is approved and
settled. Also included in other revenues from operations are insurance
commissions, ATM surcharge fees, and advisory fees. Insurance commissions are
recognized at the time the insurance policy is executed with the
customer. Insurance renewal commissions are recognized upon subsequent renewal
of the policy. ATM surcharge fees are included in revenue at the time of the
respective ATM transaction. Advisory fees are generally recognized at the
conclusion of the advisory engagement when the Company has satisfied its service
obligation.
12. Stock-based compensation plans
Stock-based compensation expense was $85 million in 2021, $80 million in 2020
and $76 million in 2019. The Company recognized income tax benefits related to
stock-based compensation of $16 million in 2021, $17 million in 2020 and $19
million in 2019.
The Company's equity incentive compensation plan allows for the issuance of
various forms of stock-based compensation, including stock options, restricted
stock and restricted stock units, including performance-based awards. At
December 31, 2021 and 2020, respectively, there were 2,299,502 and 3,100,665
shares available for future grant under the Company's equity incentive
compensation plan.
Stock awards
Stock awards granted to employees are comprised of restricted stock and
restricted stock units. Stock awards generally vest over three years. The
Company may issue shares from treasury stock to the extent available or issue
new shares. There were no restricted shares issued in 2021, 2020 or 2019. The
number of restricted stock units issued was 636,956 in 2021, 480,949 in 2020 and
448,487 in 2019, with a weighted-average grant date fair value of $84 million,
$81 million and $74 million, respectively. Unrecognized compensation expense
associated with restricted stock units was $27 million as of December 31, 2021
and is expected to be recognized over a weighted-average period of approximately
one year.
165
--------------------------------------------------------------------------------A summary of restricted stock and restricted stock unit activity follows:
Restricted Weighted- Restricted Weighted-
Stock Units Average Stock Average
Outstanding Grant Price Outstanding Grant Price
Unvested at January 1, 2021 816,950 $ 169.60 13,550 $ 162.50
Granted 636,956 132.85 - -
Vested (379,155 ) 170.80 (9,474 ) 162.57
Cancelled (36,059 ) 149.61 - -
Unvested at December 31, 2021 1,038,692 $ 147.32 4,076 $ 162.35
Stock option awards
Stock options granted to employees generally vest over three years and are
exercisable over terms not exceeding ten years and one day. The Company granted
178,441, 187,088 and 164,244 stock options in 2021, 2020 and 2019,
respectively. The weighted-average grant date fair value of options granted was
$5 million in each of 2021, 2020 and 2019. The Company used an option pricing
model to estimate the grant date present value of stock options granted.
A summary of stock option activity follows:
Weighted-Average
Stock Aggregate
Options Exercise Life Intrinsic Value
Outstanding Price (In Years) (In thousands)
Outstanding at January 1, 2021 465,423 $ 174.11
Granted 178,441 132.47
Exercised (2,699 ) 113.06
Expired (5,301 ) 169.24
Outstanding at December 31, 2021 635,864 $ 162.73 7.8 $ 3,762
Exercisable at December 31, 2021 282,081 $ 177.02 6.9 $ -
For 2021, 2020 and 2019, M&T received $305,000, $3 million and $9 million,
respectively, in cash from the exercise of stock options. The intrinsic value of
stock options exercised and the related tax benefits realized by the Company
were not material in any of those three years. As of December 31, 2021, the
amount of unrecognized compensation cost related to non-vested stock options was
not material. The total grant date fair value of stock options vested during
2021, 2020 and 2019 was not material. Upon the exercise of stock options, the
Company may issue shares from treasury stock to the extent available or issue
new shares.
Stock purchase plan
The stock purchase plan provides eligible employees of the Company with the
right to purchase shares of M&T common stock at a discount through accumulated
payroll deductions. In connection with the employee stock purchase plan, shares
of M&T common stock issued were 95,147 in 2021, 77,170 in 2020 and 71,676 in
2019. As of December 31, 2021, there were 2,138,434 shares available for
issuance under the plan. M&T received cash for shares purchased through the
employee stock purchase plan of $11 million in each of 2021 and 2019, and $12
million in 2020, Compensation expense recognized for the stock purchase plan was
not material in 2021, 2020 or 2019.
166
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Deferred bonus plan
The Company provided a deferred bonus plan pursuant to which eligible employees
could elect to defer all or a portion of their annual incentive compensation
awards and allocate such awards to several investment options, including M&T
common stock. Participants could elect the timing of distributions from the
plan. Such distributions are payable in cash with the exception of balances
allocated to M&T common stock which are distributable in the form of M&T common
stock. Shares of M&T common stock distributable pursuant to the terms of the
deferred bonus plan were 13,319 and 14,304 at December 31, 2021 and 2020,
respectively. The obligation to issue shares is included in "common stock
issuable" in the consolidated balance sheet.
Directors' stock compensation programs
The Company maintains compensation programs for members of the Company's boards
of directors and its regional director advisory councils that provides for a
portion of their compensation to be received in shares or restricted stock
units. In 2021, 28,646 shares were issued under such programs.
Through acquisitions, the Company assumed obligations to issue shares of M&T
common stock related to deferred directors compensation plans. Shares of common
stock issuable under such plans were 2,450 and 3,809 at December 31, 2021 and
2020, respectively. The obligation to issue shares is included in "common stock
issuable" in the consolidated balance sheet.
13. Pension plans and other postretirement benefits The Company provides defined pension and other postretirement benefits (including health care and life insurance benefits) to qualified retired employees. The Company uses a December 31 measurement date for all of its plans. Net periodic pension expense for defined benefit plans consisted of the following:
Year Ended December 31
2021 2020 2019
(In thousands)
Service cost $ 20,513 $ 19,944 $ 17,294
Interest cost on benefit obligation 61,873 71,421 81,579 Expected return on plan assets (143,448 ) (125,512 ) (122,139 ) Amortization of prior service cost 553 557
557
Recognized net actuarial loss 89,017 58,096
21,992
Net periodic pension cost (benefit) $ 28,508 $ 24,506 $ (717 )
Net other postretirement benefits expense for defined benefit plans consisted of
the following:
Year Ended December 31
2021 2020 2019
(In thousands)
Service cost $ 1,014 $ 970 $ 859Interest cost on benefit obligation 1,311 1,741 2,344 Amortization of prior service credit (4,738 ) (4,738 ) (4,730 ) Recognized net actuarial gain
(1,295 ) (1,236 ) (1,247 )
Net other postretirement benefits $ (3,708 ) $ (3,263 ) $ (2,774 )
Service cost is reflected in salaries and employee benefits expense. The other components of net periodic benefit expense are reflected in other costs of operations.
167
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Data relating to the funding position of the defined benefit plans were as
follows:
Other
Pension Benefits Postretirement Benefits
2021 2020 2021 2020
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of
year $ 2,521,292 $ 2,247,329 $ 55,281 $ 56,492
Service cost 20,513 19,944 1,014 970
Interest cost 61,873 71,421 1,311 1,741
Plan participants' contributions - - 2,553 2,386
Actuarial (gain) loss (69,230 ) 288,944 (2,232 ) 2,371
Medicare Part D reimbursement - - 540 574
Benefits paid (114,235 ) (106,346 ) (6,621 ) (9,253 )
Benefit obligation at end of year 2,420,213 2,521,292 51,846 55,281
Change in plan assets:
Fair value of plan assets at
beginning of year 2,420,582 2,037,940 - -
Actual return on plan assets 278,260 178,610 - -
Employer contributions 11,231 310,378 3,528 6,293
Plan participants' contributions - - 2,553 2,386
Medicare Part D reimbursement - - 540 574
Benefits paid (114,235 ) (106,346 ) (6,621 ) (9,253 )
Fair value of plan assets at end of
year 2,595,838 2,420,582 - -
Funded status $ 175,625 $ (100,710 ) $ (51,846 ) $ (55,281 )
Prepaid asset recognized in the
consolidated balance sheet 332,197 64,670 - -
Accrued liability recognized in the
consolidated balance sheet (156,572 ) (165,380 ) (51,846 ) (55,281 ) Net accrued asset (liability)
recognized in the consolidated
balance sheet $ 175,625 $ (100,710 ) $ (51,846 ) $ (55,281 )
Amounts recognized in accumulated
other comprehensive income ("AOCI")
were:
Net loss (gain) $ 391,721 $ 684,780 $ (14,638 ) $ (13,701 )
Net prior service cost (credit) 724 1,277 (17,531 ) (22,269 )
Pre-tax adjustment to AOCI 392,445 686,057 (32,169 ) (35,970 )
Taxes (101,447 ) (178,375 ) 8,316 9,352
Net adjustment to AOCI $ 290,998 $ 507,682 $ (23,853 ) $ (26,618 )
The Company has an unfunded supplemental pension plan for certain key executives
and others. The projected benefit obligation and accumulated benefit obligation
included in the preceding data related to such plan were $157 million as of
December 31, 2021 and $165 million as of December 31, 2020.
The accumulated benefit obligation for all defined benefit pension plans was
$2.4 billion and $2.5 billion at December 31, 2021 and 2020, respectively.
168
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GAAP requires an employer to recognize in its balance sheet as an asset or
liability the overfunded or underfunded status of a defined benefit
postretirement plan, measured as the difference between the fair value of plan
assets and the benefit obligation. For a pension plan, the benefit obligation is
the projected benefit obligation; for any other postretirement benefit plan,
such as a retiree health care plan, the benefit obligation is the accumulated
postretirement benefit obligation. Gains or losses and prior service costs or
credits that arise during the period, but are not included as components of net
periodic benefit expense, are recognized as a component of other comprehensive
income. Amortization of net gains and losses is included in annual net periodic
benefit expense if, as of the beginning of the year, the net gain or loss
exceeds 10% of the greater of the benefit obligation or the market-related fair
value of the plan assets. As indicated in the preceding table, as of
December 31, 2021 the Company recorded a minimum liability adjustment of $360
million ($392 million related to pension plans and $(32) million related to
other postretirement benefits) with a corresponding reduction of shareholders'
equity, net of applicable deferred taxes, of $267 million. In aggregate, the
benefit plans realized a net gain during 2021 that resulted in a decrease to the
minimum liability adjustment from that which was recorded at December 31, 2020
of $290 million. The net gain in 2021 was mainly the result of increasing the
discount rate used to measure the benefit obligation of all plans to 2.75% at
December 31, 2021 from 2.50% used at the prior year-end and a return on plan
assets that exceeded the assumed expected return, offset, in part, by the
amortization of actuarial losses. The table below reflects the changes in plan
assets and benefit obligations recognized in other comprehensive income related
to the Company's postretirement benefit plans.
Other
Postretirement
Pension Plans Benefit Plans Total
(In thousands)
2021
Net loss (gain) $ (204,042 ) $ (2,232 ) $ (206,274 )
Amortization of prior service (cost) credit (553 ) 4,738 4,185
Amortization of actuarial (loss) gain (89,017 ) 1,295 (87,722 )
Total recognized in other comprehensive income,
pre-tax $ (293,612 ) $ 3,801 $ (289,811 )
2020
Net loss (gain) $ 235,847 $ 2,371 $ 238,218
Amortization of prior service (cost) credit (557 ) 4,738 4,181
Amortization of actuarial (loss) gain (58,096 ) 1,236 (56,860 )
Total recognized in other comprehensive income,
pre-tax $ 177,194 $ 8,345 $ 185,539
The Company also provides a qualified defined contribution pension plan to
eligible employees who were not participants in the defined benefit pension plan
as of December 31, 2005 and to other employees who have elected to participate
in the defined contribution plan. The Company makes contributions to the defined
contribution plan each year in an amount that is based on an individual
participant's total compensation (generally defined as total wages, incentive
compensation, commissions and bonuses) and years of service. Company
contributions to the plan are discretionary for participants for which
eligibility occurred after January 1, 2020. Participants do not contribute to
the defined contribution pension plan. Pension expense recorded in 2021, 2020
and 2019 associated with the defined contribution pension plan was $40 million,
$35 million and $32 million, respectively.
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--------------------------------------------------------------------------------Assumptions
The assumed weighted-average rates used to determine benefit obligations at
December 31 were:
Other
Pension Postretirement
Benefits Benefits
2021 2020 2021 2020
Discount rate 2.75 % 2.50 % 2.75 % 2.50 %
Rate of increase in future compensation levels 3.35 % 3.37 % - -
The assumed weighted-average rates used to determine net benefit expense for the years ended December 31 were:
Other
Pension Benefits Postretirement Benefits
2021 2020 2019 2021 2020 2019
Discount rate 2.50 % 3.25 % 4.25 % 2.50 % 3.25 % 4.25 %
Long-term rate of return on plan assets 6.25 % 6.50 % 6.50 % - - -
Rate of increase in future compensation
levels 3.37 % 4.29 % 4.31 % - - -
The discount rate used by the Company to determine the present value of the
Company's future benefit obligations reflects specific market yields for a
hypothetical portfolio of highly rated corporate bonds that would produce cash
flows similar to the Company's benefit plan obligations and the level of market
interest rates in general as of the year-end.
The expected long-term rate of return assumption as of each measurement date was
developed through analysis of historical market returns, current market
conditions, anticipated future asset allocations, the funds' past experience,
and expectations on potential future market returns. The expected rate of return
assumption represents a long-term average view of the performance of the plan
assets, a return that may or may not be achieved during any one calendar year.
The Company's defined benefit pension plan is sensitive to the long-term rate of
return on plan assets and the discount rate. To demonstrate the sensitivity of
pension expense to changes in these assumptions, with all other assumptions held
constant, 25 basis point increases in: the rate of return on plan assets would
have resulted in a decrease in pension expense of approximately $6 million; and
the discount rate would have resulted in a decrease in pension expense of
approximately $11 million. Decreases of 25 basis points in those assumptions
would have resulted in similar changes in amount, but in the opposite direction
from the changes presented in the preceding sentence. Additionally, an increase
of 25 basis points in the discount rate would have decreased the benefit
obligation by
$79 million and a decrease of 25 basis points in the discount rate would have
increased the benefit obligation by $84 million at December 31, 2021.
For measurement of other postretirement benefits, a 6.00% annual rate of
increase in the per capita cost of covered health care benefits was assumed for
2021. The rate was assumed to decrease to 5.00% over seven years.
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--------------------------------------------------------------------------------Plan assets
The Company's policy is to invest the pension plan assets in a prudent manner
for the purpose of providing benefit payments to participants and mitigating
reasonable expenses of administration. The Company's investment strategy is
designed to provide a total return that, over the long-term, places an emphasis
on the preservation of capital. The strategy attempts to maximize investment
returns on assets at a level of risk deemed appropriate by the Company while
complying with applicable regulations and laws. The investment strategy utilizes
asset diversification as a principal determinant for establishing an appropriate
risk profile while emphasizing total return realized from capital appreciation,
dividends and interest income. The target allocations for plan assets are
generally 25 to 60 percent equity securities, 10 to 65 percent debt securities,
and 5 to 60 percent money-market investments/cash equivalents and other
investments, although holdings could be more or less than these general
guidelines based on market conditions at the time and actions taken or
recommended by the investment managers providing advice to the Company. Assets
are managed by a combination of internal and external investment managers.
Equity securities may include investments in domestic and international
equities, through individual securities, mutual funds and exchange-traded funds.
Debt securities may include investments in corporate bonds of companies from
diversified industries, mortgage-backed securities guaranteed by government
agencies and U.S. Treasury securities through individual securities and mutual
funds. Additionally, the Company's defined benefit pension plan held $537
million (21% of total assets) of real estate funds, private investments, hedge
funds and other investments at December 31, 2021. Returns on invested assets are
periodically compared with target market indices for each asset type to aid
management in evaluating such returns. Furthermore, management regularly reviews
the investment policy and may, if deemed appropriate, make changes to the target
allocations noted above.
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--------------------------------------------------------------------------------The fair values of the Company's pension plan assets at December 31, 2021 and 2020, by asset category, were as follows:
Fair Value Measurement of Plan Assets At December 31, 2021
Quoted Prices
in Active Significant Significant
Markets Observable Unobservable
for Identical Assets Inputs Inputs
Total (Level 1) (Level 2) (Level 3)
(In thousands)
Asset category:
Money-market investments $ 82,751 $ 43,616 $ 39,135 $ -
Equity securities:
M&T 134,447 134,447 - -
Domestic(a) 369,283 369,283 - -
International(b) 14,835 14,835 - -
Mutual funds:
Domestic(a) 280,347 280,347 - -
International(b) 461,304 461,304 - -
1,260,216 1,260,216 - -
Debt securities:
Corporate(c) 178,528 - 178,528 -
Government 206,540 - 206,540 -
International 12,933 - 12,933 -
Mutual funds:
Domestic(d) 315,424 315,424 - -
713,425 315,424 398,001 -
Other:
Diversified mutual fund 108,239 108,239 - -
Real estate partnerships 16,620 5,264 - 11,356
Private equity / debt 151,550 - - 151,550
Hedge funds 250,691 74,599 - 176,092
Guaranteed deposit fund 10,041 - - 10,041
537,141 188,102 - 349,039
Total(e) $ 2,593,533 $ 1,807,358 $ 437,136 $ 349,039
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Fair Value Measurement of Plan Assets At December 31, 2020
Quoted Prices
in Active Significant Significant
Markets Observable Unobservable
for Identical Assets Inputs Inputs
Total (Level 1) (Level 2) (Level 3)
(In thousands)
Asset category:
Money-market investments $ 65,263 $ 48,322 $ 16,941 $ -
Equity securities:
M&T 111,441 111,441 - -
Domestic(a) 308,220 308,220 - -
International(b) 13,648 13,648 - -
Mutual funds:
Domestic(a) 302,094 302,094 - -
International(b) 422,601 422,601 - -
1,158,004 1,158,004 - -
Debt securities:
Corporate(c) 172,762 - 172,762 -
Government 234,232 - 234,232 -
International 6,413 - 6,413 -
Mutual funds:
Domestic(d) 302,635 302,635 - -
716,042 302,635 413,407 -
Other:
Diversified mutual fund 83,507 83,507 - -
Real estate partnerships 26,847 3,616 - 23,231
Private equity / debt 97,124 - - 97,124
Hedge funds 261,417 108,516 - 152,901
Guaranteed deposit fund 10,498 - - 10,498
479,393 195,639 - 283,754
Total(e) $ 2,418,702 $ 1,704,600 $ 430,348 $ 283,754
(a) This category is mainly comprised of equities of companies primarily within
the small-cap, mid-cap and large-cap sectors of the U.S. economy and range
across diverse industries.
(b) This category is comprised of equities in companies primarily within the
mid-cap and large-cap sectors of international markets mainly in developed
and emerging markets in Europe and the Pacific Rim.
(c) This category represents investment grade bonds of U.S. issuers from diverse
industries.
(d) Approximately 72% of the mutual funds were invested in investment grade bonds
and 28% in high-yielding bonds at December 31, 2021. Approximately 78% of the
mutual funds were invested in investment grade bonds and 22% in high-yielding
bonds at December 31, 2020. The holdings within the funds were spread across
diverse industries.
(e) Excludes dividends and interest receivable totaling $2 million at each of
December 31, 2021 and 2020.
Pension plan assets included common stock of M&T with a fair value of $134
million (5% of total plan assets) at December 31, 2021 and $111 million (5% of
total plan assets) at December 31, 2020. No investment in securities of a
non-U.S. Government or government agency issuer exceeded ten percent of plan
assets at December 31, 2021.
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--------------------------------------------------------------------------------The changes in Level 3 pension plan assets measured at estimated fair value on a recurring basis during the year ended December 31, 2021 were as follows:
Total
Realized/
Balance - Unrealized Balance -
January 1, Purchases Gains December 31,
2021 (Sales) (Losses) 2021
(In thousands)
Other
Real estate partnerships $ 23,231 $ (31,299 ) $ 19,424 $ 11,356
Private equity/debt 97,124 27,170 27,256 151,550
Hedge funds 152,901 (2,322 ) 25,513 176,092
Guaranteed deposit fund 10,498 - (457 ) 10,041
Total $ 283,754 $ (6,451 ) $ 71,736 $ 349,039
The Company makes contributions to its funded qualified defined benefit pension
plan as required by government regulation or as deemed appropriate by management
after considering factors such as the fair value of plan assets, expected
returns on such assets, and the present value of benefit obligations of the
plan. The Company made a voluntary contribution of $300 million to the qualified
defined benefit pension plan in 2020. The Company is not required to make
contributions to the qualified defined benefit plan in 2022, however, subject to
the impact of actual events and circumstances that may occur in 2022, the
Company may make contributions, but the amount of any such contributions has not
been determined. The Company regularly funds the payment of benefit obligations
for the supplemental defined benefit pension and postretirement benefit plans
because such plans do not hold assets for investment. Payments made by the
Company for supplemental pension benefits were $11 million and $10 million in
2021 and 2020, respectively. Payments made by the Company for postretirement
benefits were $4 million and $6 million in 2021 and 2020, respectively. Payments
for supplemental pension and other postretirement benefits for 2022 are not
expected to differ from those made in 2021 by an amount that will be material to
the Company's consolidated financial position.
Estimated benefits expected to be paid in future years related to the Company's
defined benefit pension and other postretirement benefits plans are as follows:
Other
Pension Postretirement
Benefits Benefits
(In thousands)
Year ending December 31:
2022 $ 110,113 $ 3,219
2023 114,022 3,112
2024 118,641 2,983
2025 121,602 2,829
2026 125,469 2,656
2027 through 2031 649,845 11,534
The Company has a retirement savings plan ("RSP") that is a defined contribution
plan in which eligible employees of the Company may defer up to 50% of qualified
compensation via contributions to the plan. The RSP was amended in 2020 to
increase the employer matching
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contribution to 100% from 75% in prior years and also to increase the employee's
qualified compensation limits to 5% from 4.5%. Employees' accounts, including
employee contributions, employer matching contributions and accumulated earnings
thereon, are at all times fully vested and nonforfeitable. Employee benefits
expense resulting from the Company's contributions to the RSP totaled $63
million, $62 million and $48 million in 2021, 2020 and 2019, respectively.
14. Income taxes
The components of income tax expense were as follows:
Year Ended December 31
2021 2020 2019
(In thousands)
Current
Federal $ 331,714 $ 267,550 $ 359,668
State and local 85,354 98,431 132,696
Total current 417,068 365,981 492,364
Deferred
Federal 71,880 (22,894 ) 40,769
State and local 15,279 (8,397 ) 16,779
Total deferred 87,159 (31,291 ) 57,548
Amortization of investments in qualified affordable housing
projects 92,176 81,679 68,200
Total income taxes applicable to pre-tax income $ 596,403 $ 416,369 $ 618,112
The Company files a consolidated federal income tax return reflecting taxable
income earned by all domestic subsidiaries. In prior years, applicable federal
tax law allowed certain financial institutions the option of deducting as bad
debt expense for tax purposes amounts in excess of actual losses. In accordance
with GAAP, such financial institutions were not required to provide deferred
income taxes on such excess. Recapture of the excess tax bad debt reserve
established under the previously allowed method will result in taxable income if
M&T Bank fails to maintain bank status as defined in the Internal Revenue Code
or charges are made to the reserve for other than bad debt losses. At
December 31, 2021, M&T Bank's tax bad debt reserve for which no federal income
taxes have been provided was $137 million. No actions are planned that would
cause this reserve to become wholly or partially taxable.
Income taxes attributable to gains or losses on bank investment securities were
a benefit of $5 million in 2021 and $2 million in 2020 compared with an expense
of $5 million in 2019.
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Total income taxes differed from the amount computed by applying the statutory federal income tax rate to pre-tax income as follows:
Year Ended December 31
2021 2020 2019
(In thousands)
Income taxes at statutory federal income tax rate $ 515,581 $ 371,599 $ 534,925
Increase (decrease) in taxes:
Tax-exempt income (20,605 ) (22,806 ) (27,319 )
State and local income taxes, net of federal income tax
effect 101,046 71,127 118,085
Qualified affordable housing project tax credits, net (14,542 ) (14,826 ) (15,324 )
Other 14,923 11,275 7,745
$ 596,403 $ 416,369 $ 618,112
Deferred tax assets (liabilities) were comprised of the following at
December 31:
2021 2020 2019
(In thousands)
Losses on loans and other assets $ 395,784 $ 471,767 $ 309,523
Operating lease liabilities 110,023 121,216 128,178
Retirement benefits - 26,185 55,048
Postretirement and other employee benefits 31,760 28,004 24,023
Incentive and other compensation plans 24,713 18,984 26,861
Stock-based compensation 32,675 29,507 27,912
Other 52,351 66,763 69,863
Gross deferred tax assets 647,306 762,426 641,408
Right of use assets and other leasing transactions (249,209 ) (285,311 ) (326,626 )
Unrealized gains (27,066 ) (50,785 ) (13,322 )
Retirement benefits (45,402 ) - -
Capitalized servicing rights (53,219 ) (50,235 ) (56,649 )
Depreciation and amortization (93,103 ) (95,684 ) (66,925 )
Interest on loans (6,690 ) (8,113 ) (23,552 )
Gains on cash flow hedges (22,820 ) (97,004 ) (36,845 )
Other (88,053 ) (62,581 ) (40,472 )
Gross deferred tax liabilities (585,562 ) (649,713 ) (564,391 )
Net deferred tax asset $ 61,744 $ 112,713 $ 77,017
The Company believes that it is more likely than not that the deferred tax
assets will be realized through taxable earnings or alternative tax strategies.
The income tax credits shown in the statement of income of M&T in note 26 arise
principally from operating losses before dividends from subsidiaries.
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A reconciliation of the beginning and ending amount of unrecognized tax benefits
follows:
Federal, Unrecognized
State and Accrued Income Tax
Local Tax Interest Benefits
(In thousands)
Gross unrecognized tax benefits at January 1, 2019 $ 56,274 $
6,629 $ 62,903
Increases as a result of tax positions taken during 2019 6,996 - 6,996 Increases as a result of tax positions taken in prior years 3,265 3,255 6,520 Decreases as a result of tax positions taken in prior years (7,566 ) (2,685 ) (10,251 ) Gross unrecognized tax benefits at December 31, 2019 58,969 7,199 66,168 Increases as a result of tax positions taken in prior years - 2,800 2,800 Decreases as a result of tax positions taken in prior years (10,107 ) (2,384 ) (12,491 ) Gross unrecognized tax benefits at December 31, 2020 48,862 7,615 56,477 Increases as a result of tax positions taken in prior years - 2,560 2,560 Decreases as a result of tax positions taken in prior years (11,351 ) (2,766 ) (14,117 ) Gross unrecognized tax benefits at December 31, 2021 $ 37,511 $ 7,409 44,920 Less: Federal, state and local income tax benefits (8,748 )
Net unrecognized tax benefits at December 31, 2021 that,
if recognized, would impact the effective income
tax rate $ 36,172
The Company's policy is to recognize interest and penalties, if any, related to
unrecognized tax benefits in income taxes in the consolidated statement of
income. The balance of accrued interest at December 31, 2021 is included in the
table above. The Company's federal, state and local income tax returns are
routinely subject to examinations from various governmental taxing authorities.
Such examinations may result in challenges to the tax return treatment applied
by the Company to specific transactions. Management believes that the
assumptions and judgment used to record tax-related assets or liabilities have
been appropriate. Should determinations rendered by tax authorities ultimately
indicate that management's assumptions were inappropriate, the result and
adjustments required could have a material effect on the Company's results of
operations. Examinations by the Internal Revenue Service of the Company's
federal income tax returns have been largely concluded through 2020, although
under statute the income tax returns from 2017 through 2020 could be adjusted.
The Company also files income tax returns in over forty states and numerous
local jurisdictions. Substantially all material state and local matters have
been concluded for years through 2013. It is not reasonably possible to estimate
when examinations for any subsequent years will be completed.
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15. Earnings per common share
The computations of basic earnings per common share follow:
Year Ended December 31
2021 2020 2019
(In thousands, except per share)
Income available to common shareholders:
Net income $ 1,858,746 $ 1,353,152 $ 1,929,149
Less: Preferred stock dividends(a) (72,915 ) (68,228 ) (69,441 )
Net income available to common equity 1,785,831 1,284,924 1,859,708
Less: Income attributable to unvested stock-based
compensation awards (8,854 ) (5,858 ) (10,199 )
Net income available to common shareholders $ 1,776,977 $ 1,279,066 $ 1,849,509
Weighted-average shares outstanding:
Common shares outstanding (including common stock
issuable) and unvested stock-based compensation
awards 129,539 129,404 135,169
Less: Unvested stock-based compensation awards (890 ) (766 ) (741 )
Weighted-average shares outstanding 128,649 128,638 134,428
Basic earnings per common share $ 13.81 $
9.94 $ 13.76
(a) Including impact of not as yet declared cumulative dividends in 2019.
The computations of diluted earnings per common share follow:
Year Ended December 31
2021 2020 2019
(In thousands, except per share)
Net income available to common equity $ 1,785,831 $ 1,284,924 $ 1,859,708
Less: Income attributable to unvested stock-based
compensation awards (8,844 ) (5,856 ) (10,197 )
Net income available to common shareholders $ 1,776,987 $ 1,279,068 $ 1,849,511
Adjusted weighted-average shares outstanding:
Common and unvested stock-based compensation awards 129,539 129,404 135,169
Less: Unvested stock-based compensation awards (890 ) (766 ) (741 )
Plus: Incremental shares from assumed conversion of
stock-based compensation awards and warrants to
purchase common stock 163 66 34 Adjusted weighted-average shares outstanding 128,812
128,704 134,462
Diluted earnings per common share $ 13.80 $
9.94 $ 13.75
GAAP defines unvested share-based awards that contain nonforfeitable rights to
dividends or dividend equivalents (whether paid or unpaid) as participating
securities that shall be included in the computation of earnings per common
share pursuant to the two-class method. The Company has issued stock-based
compensation awards in the form of restricted stock and restricted stock units,
which, in accordance with GAAP, are considered participating securities.
Stock-based compensation awards and warrants to purchase common stock of M&T
representing common shares of 461,000 in 2021, 474,000 in 2020 and 238,000 in
2019 were not included in the computations of diluted earnings per common share
because the effect on those years would have been antidilutive.
178
--------------------------------------------------------------------------------16. Comprehensive income
The following tables display the components of other comprehensive income (loss)
and amounts reclassified from accumulated other comprehensive income (loss) to
net income:
Defined Total
Investment Benefit Amount Income
Securities Plans Other Before Tax Tax Net
(In thousands)
Balance - January 1, 2021 $ 195,386 $ (650,087 ) $ 369,558 $ (85,143 ) $ 22,111 $ (63,032 ) Other comprehensive income before reclassifications:
Unrealized holding losses, net (95,114 ) - - (95,114 ) 24,870 (70,244 ) Foreign currency translation adjustment - - (1,218 ) (1,218 ) 356 (862 ) Unrealized losses on cash flow hedges - - (32,292 ) (32,292 ) 8,410 (23,882 ) Current year benefit plans gains - 206,274 - 206,274 (54,016 ) 152,258
Total other comprehensive income (loss) before
reclassifications (95,114 ) 206,274 (33,510 ) 77,650 (20,380 ) 57,270 Amounts reclassified from accumulated other comprehensive income that (increase) decrease net income: Amortization of unrealized holding losses on held-to-maturity securities 4,427 - - 4,427 (a) (1,154 ) 3,273 Gains realized in net income (8 ) - - (8 ) (b) 2 (6 )
Accretion of net gain on terminated cash
flow hedges - - (120 ) (120 ) (c) 32 (88 )
Net yield adjustment from cash flow hedges
currently in effect -
- (252,397 ) (252,397 ) (a) 65,741 (186,656 ) Amortization of prior service credit
- (4,185 ) - (4,185 ) (d) 1,095 (3,090 )
Amortization of actuarial losses - 87,722 - 87,722 (d) (22,971 ) 64,751
Total other comprehensive income (loss) (90,695 ) 289,811 (286,027 ) (86,911 ) 22,365 (64,546 )
Balance - December 31, 2021 $ 104,691 $ (360,276 ) $ 83,531 $ (172,054 ) $ 44,476 $ (127,578 )
Balance - January 1, 2020 $ 50,701 $ (464,548 ) $ 133,888 $ (279,959 ) $ 73,279 $ (206,680 ) Other comprehensive income before reclassifications: Unrealized holding gains, net
141,081 - - 141,081 (36,498 ) 104,583
Foreign currency translation adjustment - - 2,724 2,724 (440 ) 2,284
Unrealized gains on cash flow hedges - - 505,042 505,042 (130,432 ) 374,610
Current year benefit plans losses - (238,218 ) - (238,218 ) 60,208 (178,010 )
Total other comprehensive income (loss) before
reclassifications 141,081 (238,218 ) 507,766 410,629 (107,162 ) 303,467 Amounts reclassified from accumulated other comprehensive income that (increase) decrease net income: Amortization of unrealized holding losses on held-to-maturity securities 3,606 - - 3,606 (a) (966 ) 2,640 Gains realized in net income (2 ) - - (2 ) (b) 1 (1 )
Accretion of net gain on terminated cash
flow hedges - - (125 ) (125 ) (c) 34 (91 )
Net yield adjustment from cash flow hedges
currently in effect -
- (271,971 ) (271,971 ) (a) 70,239 (201,732 ) Amortization of prior service credit
- (4,181 ) - (4,181 ) (d) 1,057 (3,124 )
Amortization of actuarial losses - 56,860 - 56,860 (d) (14,371 ) 42,489
Total other comprehensive income (loss) 144,685 (185,539 ) 235,670 194,816 (51,168 ) 143,648
Balance - December 31, 2020 $ 195,386 $ (650,087 ) $ 369,558 $ (85,143 ) $ 22,111 $ (63,032 )
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Defined Total
Investment Benefit Amount Income
Securities Plans Other Before Tax Tax Net
(In thousands)
Balance - January 1, 2019 $ (200,107 ) $ (354,502 ) $ (14,719 ) $ (569,328 ) $ 149,247 $ (420,081 )
Other comprehensive income before
reclassifications:
Unrealized holding gains, net 247,411 - - 247,411 (65,009 ) 182,402
Foreign currency translation adjustment - - 1,381 1,381 (290 ) 1,091
Unrealized gains on cash flow hedges - - 160,373 160,373 (42,163 ) 118,210
Current year benefit plans losses - (126,618 ) - (126,618 ) 33,287 (93,331 ) Total other comprehensive income (loss) before
reclassifications 247,411 (126,618 ) 161,754 282,547 (74,175 ) 208,372 Amounts reclassified from accumulated other comprehensive income that (increase) decrease net income: Amortization of unrealized holding losses on held-to-maturity securities 3,394 - - 3,394 (a) (892 ) 2,502 Losses realized in net income 3 - - 3 (b) (1 ) 2
Accretion of net gain on terminated cash
flow hedges - - (136 ) (136 ) (c) 36 (100 ) Net yield adjustment from cash flow hedges currently in effect - -
(13,011 ) (13,011 ) (a) 3,421 (9,590 ) Amortization of prior service credit
- (4,173 ) - (4,173 ) (d) 1,097 (3,076 ) Amortization of actuarial losses
- 20,745 - 20,745 (d) (5,454 ) 15,291 Total other comprehensive income (loss) 250,808 (110,046 )
148,607 289,369 (75,968 ) 213,401
Balance - December 31, 2019 $ 50,701 $ (464,548 ) $ 133,888 $ (279,959 ) $ 73,279 $ (206,680 )
(a) Included in interest income.
(b) Included in gain (loss) on bank investment securities.
(c) Included in interest expense.
(d) Included in other costs of operations.
Accumulated other comprehensive income (loss), net consisted of the following:
Investment Defined
Securities Benefit Plans Other Total
(In thousands)
Balance at January 1, 2019 $ (147,526 ) $ (261,303 ) $ (11,252 ) $ (420,081 )
Net gain (loss) during 2019 184,906 (81,116 ) 109,611 213,401
Balance at December 31, 2019 37,380 (342,419 ) 98,359 (206,680 )
Net gain (loss) during 2020 107,222 (138,645 ) 175,071 143,648
Balance at December 31, 2020 144,602 (481,064 ) 273,430 (63,032 )
Net gain (loss) during 2021 (66,977 ) 213,919 (211,488 ) (64,546 )
Balance at December 31, 2021 $ 77,625 $ (267,145 ) $ 61,942 $ (127,578 )
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17. Other income and other expense
The following items, which exceeded 1% of total interest income and other income
in the respective period, were included in either "other revenues from
operations" or "other costs of operations" in the consolidated statement of
income:
Year Ended December 31
2021 2020 2019
(In thousands)
Other income:
Credit-related fee income $ 90,816 $ 70,387 $ 86,792
Credit card interchange fee income 69,963
Merchant discount fee income 61,442
Other expense:
Professional services 348,360 240,047 330,900 Amortization of capitalized mortgage servicing rights 89,767 84,821 71,888
18. International activities
The Company engages in limited international activities including certain
trust-related services in Europe, collecting Eurodollar deposits, engaging in
foreign currency transactions associated with customer activity, providing
credit to support the international activities of domestic companies and holding
certain loans to foreign borrowers. Assets and revenues associated with
international activities represent less than 1% of the Company's consolidated
assets and revenues. International assets included $197 million and $170 million
of loans to foreign borrowers at December 31, 2021 and 2020, respectively.
Deposits in the Company's office in the Cayman Islands aggregated $652 million
at December 31, 2020. There were no outstanding deposits at the Cayman Islands
office at December 31, 2021 and the office is closed. Deposits at M&T Bank's
office in Ontario, Canada were $32 million at each of December 31, 2021 and
December 31, 2020. Revenues from providing international trust-related services
were approximately $38 million in 2021, $36 million in 2020 and $32 million in
2019.
19. Derivative financial instruments
As part of managing interest rate risk, the Company enters into interest rate
swap agreements to modify the repricing characteristics of certain portions of
the Company's portfolios of earning assets and interest-bearing liabilities. The
Company designates interest rate swap agreements utilized in the management of
interest rate risk as either fair value hedges or cash flow hedges. Interest
rate swap agreements are generally entered into with counterparties that meet
established credit standards and most contain master netting, collateral and/or
settlement provisions protecting the at-risk party. Based on adherence to the
Company's credit standards and the presence of the netting, collateral or
settlement provisions, the Company believes that the credit risk inherent in
these contracts was not material as of December 31, 2021.
The net effect of interest rate swap agreements was to increase net interest
income by $287 million 2021 and $312 million in 2020 , and to decrease net
interest income by $2 million in 2019.
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Information about interest rate swap agreements entered into for interest rate
risk management purposes summarized by type of financial instrument the swap
agreements were intended to hedge follows:
Weighted- Estimated
Notional Average Average Rate Fair Value
Amount Maturity Fixed Variable Gain (Loss) (a)
(In thousands) (In years) (In thousands)
December 31, 2021
Fair value hedges:
Fixed rate long-term borrowings (b) $ 1,650,000 2.3 2.86 % 0.74 % $ 41
Cash flow hedges:
Interest payments on variable rate
commercial real estate loans (b)(c) 21,700,000 0.6 1.24 % 0.09 % (248 )
Total $ 23,350,000 0.7 $ (207 )
December 31, 2020
Fair value hedges:
Fixed rate long-term borrowings (b) $ 1,650,000 3.3 2.86 % 0.79 % $ 651
Cash flow hedges:
Interest payments on variable rate
commercial real estate loans (b)(d) 49,400,000 0.9 2.22 % 0.15 % 425
Total $ 51,050,000 1.0 $ 1,076
(a) Certain clearinghouse exchanges consider payments by counterparties for
variation margin on derivative instruments to be settlements of those
positions. The impact of such treatment at December 31, 2021 and December 31,
2020 was a reduction of the estimated fair value gains on interest rate swap
agreements designated as fair value hedges of $43.5 million and $101.5
million, respectively, and on interest rate swap agreements designated as
cash flow hedges of $88.2 million and $372.2 million, respectively.
(b) Under the terms of these agreements, the Company receives settlement amounts
at a fixed rate and pays at a variable rate.
(c) Includes notional amount and terms of $8.4 billion of forward-starting
interest rate swap agreements that become effective in 2022.
(d) Includes notional amount and terms of $32.1 billion of forward-starting
interest rate swap agreement that become effective in 2021-2022.
The notional amount of interest rate swap agreements entered into for risk
management purposes that were outstanding at December 31, 2021 mature as
follows:
(In thousands)
Year ending December 31:
2022 $ 16,500,000
2023 6,350,000
2027 500,000
$ 23,350,000
The Company utilizes commitments to sell residential and commercial real estate
loans to hedge the exposure to changes in the fair value of real estate loans
held for sale. Such commitments have generally been designated as fair value
hedges. The Company also utilizes commitments to sell real estate loans to
offset the exposure to changes in fair value of certain commitments to originate
real estate loans for sale.
Derivative financial instruments used for trading account purposes included
interest rate contracts, foreign exchange and other option contracts, foreign
exchange forward and spot contracts, and financial futures. Interest rate
contracts entered into for trading account purposes had notional
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Asset Derivatives Liability Derivatives
Fair Value Fair Value
December 31, December 31, December 31, December 31,
2021 2020 2021 2020
(In thousands)
Derivatives designated and qualifying as hedging
instruments
Interest rate swap agreements (a) $ 258 $ 1,968 $ 465 $ 892
Commitments to sell real estate loans (a) 4,044 1,488 548 8,458
4,302 3,456 1,013 9,350
Derivatives not designated and qualifying as hedging instruments Mortgage-related commitments to originate real estate loans
for sale (a) 11,728 43,599 5,288 365 Commitments to sell real estate loans (a) 8,137 2,409 4,108 13,868
Trading:
Interest rate contracts (b) 410,056 1,008,913 76,278 105,768
Foreign exchange and other option and futures
contracts (b) 8,230 9,608 7,156 11,134
438,151 1,064,529 92,830 131,135
Total derivatives $ 442,453 $ 1,067,985 $ 93,843 $ 140,485
(a) Asset derivatives are reported in other assets and liability derivatives are
reported in other liabilities.
(b) Asset derivatives are reported in trading account assets and liability
derivatives are reported in other liabilities. The impact of variation margin
payments at December 31, 2021 and December 31, 2020 was a reduction of the
estimated fair value of interest rate contracts in the trading account in an
asset position of $54.4 million and $5.6 million, respectively, and in a
liability position of $305.1 million and $806.5 million, respectively.
Amount of Gain (Loss) Recognized
Year Ended December 31, 2021 Year Ended December 31, 2020 Year Ended December 31, 2019
Derivative Hedged Item Derivative Hedged Item Derivative Hedged Item
(In thousands)
Derivatives in fair value
hedging relationships Interest rate swap agreements: Fixed rate long-term borrowings (a) $ (58,599 ) $ 57,716 $ 57,611 $ (57,686 ) $ 95,006 $ (94,742 ) Derivatives not designated as hedging instruments Trading: Interest rate contracts (b) $ (11,268 ) $ 6,344 $ 24,701
Foreign exchange and other option and
futures contracts (b) 9,064 7,363 8,511 Total $ (2,204 ) $ 13,707 $ 33,212
(a) Reported as an adjustment to interest expense.
(b) Reported as trading account and foreign exchange gains.
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Cumulative Amount of Fair Value Hedging Adjustment
Increasing (Decreasing) the Carrying Amount of the
Carrying Amount of the Hedged Item Hedged Item
December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020
(In thousands)
Location in the Consolidated Balance Sheet
of the Hedged Items in Fair Value Hedges
Long-term debt $ 1,692,943 $ 1,750,048 $ 43,610 $ 101,326
The amount of interest income recognized in the consolidated statement of income
associated with derivatives designated as cash flow hedges was $252 million and
$272 million for 2021 and 2020, respectively. As of December 31, 2021, the
unrealized gain recognized in other comprehensive income related to cash flow
hedges was $88 million, of which $65 million and $23 million relate to interest
rate swap agreements maturing in 2022 and 2023, respectively.
The Company also has commitments to sell and commitments to originate
residential and commercial real estate loans that are considered derivatives.
The Company designates certain of the commitments to sell real estate loans as
fair value hedges of real estate loans held for sale. The Company also utilizes
commitments to sell real estate loans to offset the exposure to changes in the
fair value of certain commitments to originate real estate loans for sale. As a
result of these activities, net unrealized pre-tax gains related to hedged loans
held for sale, commitments to originate loans for sale and commitments to sell
loans were approximately $24 million and $64 million at December 31, 2021 and
2020, respectively. Changes in unrealized gains and losses are included in
mortgage banking revenues and, in general, are realized in subsequent periods as
the related loans are sold and commitments satisfied.
The Company does not offset derivative asset and liability positions in its
consolidated financial statements. The Company's exposure to credit risk by
entering into derivative contracts is mitigated through master netting
agreements and collateral posting or settlement requirements. Master netting
agreements covering interest rate and foreign exchange contracts with the same
party include a right to set-off that becomes enforceable in the event of
default, early termination or under other specific conditions.
The aggregate fair value of derivative financial instruments in a liability
position, which are subject to enforceable master netting arrangements, was $35
million and $114 million at December 31, 2021 and 2020, respectively. The
Company was required to post collateral relating to those positions of $33
million and $103 million at December 31, 2021 and 2020, respectively. Certain of
the Company's derivative financial instruments contain provisions that require
the Company to maintain specific credit ratings from credit rating agencies to
avoid higher collateral posting requirements. If the Company's debt ratings were
to fall below specified ratings, the counterparties of the derivative financial
instruments could demand immediate incremental collateralization on those
instruments in a net liability position. The aggregate fair value of all
derivative financial instruments with such credit risk-related contingent
features in a net liability position on December 31, 2021 was not material.
The aggregate fair value of derivative financial instruments in an asset
position with counterparties, which are subject to enforceable master netting
arrangements, was $7 million and $3 million at December 31, 2021 and 2020,
respectively. Counterparties posted collateral relating to those positions of $6
million and $3 million at December 31, 2021 and 2020, respectively. Trading
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account interest rate swap agreements entered into with customers are subject to
the Company's credit risk standards and often contain collateral provisions.
In addition to the derivative contracts noted above, the Company clears certain
derivative transactions through a clearinghouse, rather than directly with
counterparties. Those transactions cleared through a clearinghouse require
initial margin collateral and variation margin payments depending on the
contracts being in a net asset or liability position. The amount of initial
margin collateral posted by the Company was $132 million and $135 million at
December 31, 2021 and 2020, respectively. The fair value asset and liability
amounts of derivative contracts have been reduced by variation margin payments
treated as settlements as described herein. Variation margin on derivative
contracts not treated as settlements continues to represent collateral posted or
received by the Company. In conjunction with changes made by the clearinghouse
to prepare for reference rate reform, the Company changed the discount rate
index used to value interest rate swaps from the Federal Funds Overnight Index
swap rate to the Secured Overnight Financial Rate in October 2020. The change
did not have a material impact on the Company's consolidated financial
statements.
20. Variable interest entities and asset securitizations
The Company's securitization activity has consisted of securitizing loans
originated for sale into government issued or guaranteed mortgage-backed
securities that are then retained by the Company. The amounts of those
securitizations in 2021, 2020 and 2019 are presented in the Company's
consolidated statement of cash flows. The Company has not recognized any losses
as a result of having securitized assets.
As described in note 9, M&T has issued junior subordinated debentures payable to
various trusts that have issued Capital Securities. M&T owns the common
securities of those trust entities. The Company is not considered to be the
primary beneficiary of those entities and, accordingly, the trusts are not
included in the Company's consolidated financial statements. At each of
December 31, 2021 and 2020, the Company included the junior subordinated
debentures as "long-term borrowings" in its consolidated balance sheet and
recognized $23 million in other assets for its "investment" in the common
securities of the trusts that will be concomitantly repaid to M&T by the
respective trust from the proceeds of M&T's repayment of the junior subordinated
debentures associated with preferred capital securities described in note 9.
The Company has invested as a limited partner in various partnerships that
collectively had total assets of approximately $3.0 billion at December 31, 2021
and $2.3 billion at December 31, 2020. Those partnerships generally construct or
acquire properties for which the investing partners are eligible to receive
certain federal income tax credits in accordance with government guidelines.
Such investments may also provide tax deductible losses to the partners. The
partnership investments also assist the Company in achieving its community
reinvestment initiatives. As a limited partner, there is no recourse to the
Company by creditors of the partnerships. However, the tax credits that result
from the Company's investments in such partnerships are generally subject to
recapture should a partnership fail to comply with the respective government
regulations. The Company's carrying amount of its investments in such
partnerships was $933 million, including $361 million of unfunded commitments,
at December 31, 2021 and $861 million, including $406 million of unfunded
commitments, at December 31, 2020. Contingent commitments to provide additional
capital contributions to these partnerships were not material at December 31,
2021. The Company has not provided financial or other support to the
partnerships that was not contractually required. The Company's maximum exposure
to loss from its investments in such partnerships as of December 31, 2021 was
$1.2 billion, including possible recapture of certain tax credits. Management
currently estimates that no material losses are probable as a result of the
Company's involvement with such entities. The Company, in its position as
limited partner, does not direct the activities that most significantly impact
the economic performance of the partnerships and, therefore, in accordance with
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the accounting provisions for variable interest entities, the partnership
entities are not included in the Company's consolidated financial statements.
The Company's investment in qualified affordable housing projects is amortized
to income taxes in the consolidated statement of income as tax credits and other
tax benefits resulting from deductible losses associated with the projects are
received.
The Company serves as investment advisor for certain registered money-market
funds. The Company has no explicit arrangement to provide support to those
funds, but may waive portions of its allowable management fees as a result of
market conditions.
21. Fair value measurements
GAAP permits an entity to choose to measure eligible financial instruments and
other items at fair value. The Company has not made any fair value elections at
December 31, 2021.
Pursuant to GAAP, fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. A three-level hierarchy exists in
GAAP for fair value measurements based upon the inputs to the valuation of an
asset or liability.
• Level 1 - Valuation is based on quoted prices in active markets for
identical assets and liabilities.
• Level 2 - Valuation is determined from quoted prices for similar assets or
liabilities in active markets, quoted prices for identical or similar
instruments in markets that are not active or by model-based techniques in
which all significant inputs are observable in the market.
• Level 3 - Valuation is derived from model-based and other techniques in
which at least one significant input is unobservable and which may be
based on the Company's own estimates about the assumptions that market
participants would use to value the asset or liability.
When available, the Company attempts to use quoted market prices in active
markets to determine fair value and classifies such items as Level 1 or Level 2.
If quoted market prices in active markets are not available, fair value is often
determined using model-based techniques incorporating various assumptions
including interest rates, prepayment speeds and credit losses. Assets and
liabilities valued using model-based techniques are classified as either Level 2
or Level 3, depending on the lowest level classification of an input that is
considered significant to the overall valuation. The following is a description
of the valuation methodologies used for the Company's assets and liabilities
that are measured on a recurring basis at estimated fair value.
Trading account assets and liabilities
Trading account assets and liabilities include interest rate contracts and
foreign exchange contracts with customers who require such services with
offsetting positions with third parties to minimize the Company's risk with
respect to such transactions. The Company generally determines the fair value of
its derivative trading account assets and liabilities using externally developed
pricing models based on market observable inputs and, therefore, classifies such
valuations as Level 2. Mutual funds held in connection with deferred
compensation and other arrangements have been classified as Level 1 valuations.
Valuations of investments in municipal and other bonds can generally be obtained
through reference to quoted prices in less active markets for the same or
similar securities or through model-based techniques in which all significant
inputs are observable and, therefore, such valuations have been classified as
Level 2.
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Investment securities available for sale and equity securities
The majority of the Company's available-for-sale investment securities have been
valued by reference to prices for similar securities or through model-based
techniques in which all significant inputs are observable and, therefore, such
valuations have been classified as Level 2. Certain investments in mutual funds
and equity securities are actively traded and, therefore, have been classified
as Level 1 valuations.
Real estate loans held for sale
The Company utilizes commitments to sell real estate loans to hedge the exposure
to changes in fair value of real estate loans held for sale. The carrying value
of hedged real estate loans held for sale includes changes in estimated fair
value during the hedge period. Typically, the Company attempts to hedge real
estate loans held for sale from the date of close through the sale date. The
fair value of hedged real estate loans held for sale is generally calculated by
reference to quoted prices in secondary markets for commitments to sell real
estate loans with similar characteristics and, accordingly, such loans have been
classified as a Level 2 valuation.
Commitments to originate real estate loans for sale and commitments to sell real
estate loans
The Company enters into various commitments to originate real estate loans for
sale and commitments to sell real estate loans. Such commitments are considered
to be derivative financial instruments and, therefore, are carried at estimated
fair value on the consolidated balance sheet. The estimated fair values of such
commitments were generally calculated by reference to quoted prices in secondary
markets for commitments to sell real estate loans to certain
government-sponsored entities and other parties. The fair valuations of
commitments to sell real estate loans generally result in a Level 2
classification. The estimated fair value of commitments to originate real estate
loans for sale is adjusted to reflect the Company's anticipated commitment
expirations. The estimated commitment expirations are considered significant
unobservable inputs contributing to the Level 3 classification of commitments to
originate real estate loans for sale. Significant unobservable inputs used in
the determination of estimated fair value of commitments to originate real
estate loans for sale are included in the accompanying table of significant
unobservable inputs to Level 3 measurements.
Interest rate swap agreements used for interest rate risk management
The Company utilizes interest rate swap agreements as part of the management of
interest rate risk to modify the repricing characteristics of certain portions
of its portfolios of earning assets and interest-bearing liabilities. The
Company generally determines the fair value of its interest rate swap agreements
using externally developed pricing models based on market observable inputs and,
therefore, classifies such valuations as Level 2. The Company has considered
counterparty credit risk in the valuation of its interest rate swap agreement
assets and has considered its own credit risk in the valuation of its interest
rate swap agreement liabilities.
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--------------------------------------------------------------------------------The following tables present assets and liabilities at December 31, 2021 and 2020 measured at estimated fair value on a recurring basis:
Fair Value
Measurements Level 1 Level 2 Level 3
(In thousands)
December 31, 2021
Trading account assets $ 468,031 $ 49,545 $ 418,486 $ -
Investment securities available for
sale:
U.S. Treasury and federal agencies 678,690 - 678,690 -
Mortgage-backed securities:
Government issued or guaranteed 3,155,312 - 3,155,312 -
Other debt securities 121,802 - 121,802 -
3,955,804 - 3,955,804 -
Equity securities 77,640 68,850 8,790 -
Real estate loans held for sale 899,282 - 899,282 -
Other assets (a) 24,167 - 12,439 11,728
Total assets $ 5,424,924 $ 118,395 $ 5,294,801 $ 11,728
Trading account liabilities $ 83,434 $ - $ 83,434 $ -
Other liabilities (a) 10,409 - 5,121 5,288
Total liabilities $ 93,843 $ - $ 88,555 $ 5,288
December 31, 2020
Trading account assets $ 1,068,581 $ 50,060 $ 1,018,521 $ -
Investment securities available for
sale:
U.S. Treasury and federal agencies 9,338 - 9,338 -
Mortgage-backed securities:
Government issued or guaranteed 4,683,438 - 4,683,438 -
Privately issued 16 - - 16
Other debt securities 129,814 - 129,814 -
4,822,606 - 4,822,590 16
Equity securities 92,985 63,129 29,856 -
Real estate loans held for sale 1,054,676 - 1,054,676 -
Other assets (a) 49,464 - 5,865 43,599
Total assets $ 7,088,312 $ 113,189 $ 6,931,508 $ 43,615
Trading account liabilities $ 116,902 $ - $ 116,902 $ -
Other liabilities (a) 23,583 - 23,218 365
Total liabilities $ 140,485 $ - $ 140,120 $ 365
(a) Comprised predominantly of interest rate swap agreements used for interest
rate risk management (Level 2), commitments to sell real estate loans (Level
2) and commitments to originate real estate loans to be held for sale (Level
3).
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The changes in Level 3 assets and liabilities measured at estimated fair value
on a recurring basis during the years ended December 31, 2021, 2020 and 2019
were as follows:
Investment
Securities
Available for Sale
Privately Issued Other Assets and
Mortgage-Backed Securities Other Liabilities
(In thousands)
2021
Balance - January 1, 2021 $ 16 $ 43,234
Total gains realized/unrealized:
Included in earnings - 126,223 (a) Settlements (16 ) - Transfers out of Level 3 - (163,017 ) (b) Balance - December 31, 2021 $ - $ 6,440 Changes in unrealized gains included in earnings related to assets still held at December 31, 2021 $ - $ 8,619 (a) 2020 Balance - January 1, 2020 $ 16 $ 10,740
Total gains realized/unrealized:
Included in earnings - 194,469 (a) Transfers out of Level 3 - (161,975 ) (b) Balance - December 31, 2020 $ 16 $ 43,234 Changes in unrealized gains included in earnings related to assets still held at December 31, 2020 $ - $ 42,597 (a) 2019 Balance - January 1, 2019 $ 22 $ 7,712
Total gains realized/unrealized:
Included in earnings - 129,398 (a) Settlements (6 ) - Transfers out of Level 3 - (126,370 ) (b) Balance - December 31, 2019 $ 16 $ 10,740 Changes in unrealized gains included in earnings related to assets still held at December 31, 2019 $ - $ 11,146 (a)
(a) Reported as mortgage banking revenues in the consolidated statement of income
and includes the fair value of commitment issuances and expirations.
(b) Transfers out of Level 3 consist of interest rate locks transferred to closed
loans.
The Company is required, on a nonrecurring basis, to adjust the carrying value of certain assets or provide valuation allowances related to certain assets using fair value measurements. The more significant of those assets follow.
Loans
Loans are generally not recorded at fair value on a recurring basis.
Periodically, the Company records nonrecurring adjustments to the carrying value
of loans based on fair value measurements for partial charge-offs of the
uncollectable portions of those loans. Nonrecurring adjustments also include
certain impairment amounts for collateral-dependent loans when establishing the
allowance for credit losses. Such amounts are generally based on the fair value
of the underlying collateral supporting the
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loan and, as a result, the carrying value of the loan less the calculated
valuation amount does not necessarily represent the fair value of the loan. Real
estate collateral is typically valued using appraisals or other indications of
value based on recent comparable sales of similar properties or assumptions
generally observable in the marketplace and the related nonrecurring fair value
measurement adjustments have generally been classified as Level 2, unless
significant adjustments have been made to the valuation that are not readily
observable by market participants. Non-real estate collateral supporting
commercial loans generally consists of business assets such as receivables,
inventory and equipment. Fair value estimations are typically determined by
discounting recorded values of those assets to reflect estimated net realizable
value considering specific borrower facts and circumstances and the experience
of credit personnel in their dealings with similar borrower collateral
liquidations. Such discounts were generally in the range of 15% to 90% with a
weighted-average of 31% at December 31, 2021. As these discounts are not readily
observable and are considered significant, the valuations have been classified
as Level 3. Automobile collateral is typically valued by reference to
independent pricing sources based on recent sales transactions of similar
vehicles, and the related non-recurring fair value measurement adjustments have
been classified as Level 2. Collateral values for other consumer installment
loans are generally estimated based on historical recovery rates for similar
types of loans, which at December 31, 2021 was 66%. As these recovery rates are
not readily observable by market participants, such valuation adjustments have
been classified as Level 3. Loans subject to nonrecurring fair value measurement
were $574 million at December 31, 2021 ($340 million and $234 million of which
were classified as Level 2 and Level 3, respectively), $652 million at
December 31, 2020 ($339 million and $313 million of which were classified as
Level 2 and Level 3, respectively), and $305 million at December 31, 2019 ($115
million and $190 million of which were classified as Level 2 and Level 3,
respectively). Changes in fair value recognized during the years ended
December 31, 2021, 2020 and 2019 for partial charge-offs of loans and loan
impairment reserves on loans held by the Company at the end of each of those
years were decreases of $53 million, $222 million and $110 million,
respectively.
Assets taken in foreclosure of defaulted loans
Assets taken in foreclosure of defaulted loans are primarily comprised of
commercial and residential real property and are generally measured at the lower
of cost or fair value less costs to sell. The fair value of the real property is
generally determined using appraisals or other indications of value based on
recent comparable sales of similar properties or assumptions generally
observable in the marketplace, and the related nonrecurring fair value
measurement adjustments have generally been classified as Level 2. Assets taken
in foreclosure of defaulted loans subject to nonrecurring fair value measurement
were $3 million and $22 million at December 31, 2021 and December 31, 2020,
respectively. Changes in fair value recognized during the years ended
December 31, 2021, 2020 and 2019 for foreclosed assets held by the Company at
the end of each of those years were not material.
Capitalized servicing rights
Capitalized servicing rights are initially measured at fair value in the
Company's consolidated balance sheet. The Company utilizes the amortization
method to subsequently measure its capitalized servicing assets. In accordance
with GAAP, the Company must record impairment charges, on a nonrecurring basis,
when the carrying value of certain strata exceed their estimated fair value. To
estimate the fair value of servicing rights, the Company considers market prices
for similar assets, if available, and the present value of expected future cash
flows associated with the servicing rights calculated using assumptions that
market participants would use in estimating future servicing income and expense.
Such assumptions include estimates of the cost of servicing loans, loan default
rates, an appropriate discount rate, and prepayment speeds. For
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purposes of evaluating and measuring impairment of capitalized servicing rights,
the Company stratifies such assets based on the predominant risk characteristics
of the underlying financial instruments that are expected to have the most
impact on projected prepayments, cost of servicing and other factors affecting
future cash flows associated with the servicing rights. Such factors may include
financial asset or loan type, note rate and term. The amount of impairment
recognized is the amount by which the carrying value of the capitalized
servicing rights for a stratum exceed estimated fair value. Impairment is
recognized through a valuation allowance. The determination of fair value of
capitalized servicing rights is considered a Level 3 valuation. Capitalized
servicing rights related to residential mortgage loans of $138 million and $159
million at December 31, 2021 and December 31, 2020, respectively, required a
valuation allowance of $24 million and $30 million, respectively. Significant
unobservable inputs used in this Level 3 valuation included weighted-average
prepayment speeds of 14.64% and 16.01% at December 31, 2021 and December 31,
2020, respectively, and a weighted-average option-adjusted spread of 900 basis
points at each date. Changes in fair value recognized for impairment of
capitalized servicing rights were a decrease in the valuation allowance of $6
million in 2021 and an increase in the valuation allowance of $23 million and $7
million in 2020 and 2019, respectively.
Significant unobservable inputs to level 3 measurements The following tables present quantitative information about significant unobservable inputs used in the fair value measurements for Level 3 assets and liabilities at December 31, 2021 and 2020:
Range
Valuation Unobservable (Weighted-
Fair Value Technique Inputs/Assumptions Average)
(In thousands)
December 31, 2021
Recurring fair value
measurements
Net other assets Discounted
(liabilities) (a) 6,440 cash flow Commitment expirations 0% - 80% (10%)
December 31, 2020
Recurring fair value
measurements
Two
Privately issued independent
mortgage- pricing
backed securities $ 16 quotes - -
Net other assets Discounted
(liabilities) (a) 43,234 cash flow Commitmentexpirations 0% - 98% (16%)
(a) Other Level 3 assets (liabilities) consist of commitments to originate real
estate loans.
Sensitivity of fair value measurements to changes in unobservable inputs An increase (decrease) in the estimate of expirations for commitments to originate real estate loans would generally result in a lower (higher) fair value measurement. Estimated commitment expirations are derived considering loan type, changes in interest rates and remaining length of time until closing.
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--------------------------------------------------------------------------------Disclosures of fair value of financial instruments The carrying amounts and estimated fair value for financial instrument assets (liabilities) are presented in the following tables:
December 31, 2021
Carrying Estimated
Amount Fair Value Level 1 Level 2 Level 3
(In thousands)
Financial assets:
Cash and cash equivalents $ 1,337,577 1,337,577 1,205,269 132,308 -
Interest-bearing deposits at banks 41,872,304 41,872,304
- 41,872,304 -
Trading account assets 468,031 468,031 49,545 418,486 -
Investment securities 7,155,860 7,192,476 68,850 7,066,293 57,333
Loans and leases:
Commercial loans and leases 23,473,324 23,285,224 - - 23,285,224
Commercial real estate loans 35,389,730 34,730,191 - 425,010 34,305,181
Residential real estate loans 16,074,445 16,160,799 - 4,524,018 11,636,781
Consumer loans 17,974,953 18,121,363 - - 18,121,363
Allowance for credit losses (1,469,226 ) - - - -
Loans and leases, net 91,443,226 92,297,577 - 4,949,028 87,348,549
Accrued interest receivable 335,162 335,162 - 335,162 -
Financial liabilities:
Noninterest-bearing deposits $ (60,131,480 ) (60,131,480 ) - (60,131,480 ) -
Savings and interest-checking deposits (68,603,966 ) (68,603,966 )
- (68,603,966 ) -
Time deposits (2,807,963 ) (2,810,143 ) - (2,810,143 ) -
Short-term borrowings (47,046 ) (47,046 ) - (47,046 ) -
Long-term borrowings (3,485,369 ) (3,562,223 ) - (3,562,223 ) -
Accrued interest payable (40,866 ) (40,866 ) - (40,866 ) -
Trading account liabilities (83,434 ) (83,434 ) - (83,434 ) -
Other financial instruments:
Commitments to originate real estate
loans for sale $ 6,440 6,440 - - 6,440
Commitments to sell real estate loans 7,525 7,525 - 7,525 -
Other credit-related commitments (123,032 ) (123,032 ) - - (123,032 )
Interest rate swap agreements used for
interest rate risk management (207 ) (207 ) - (207 ) -
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December 31, 2020
Carrying Estimated
Amount Fair Value Level 1 Level 2 Level 3
(In thousands)
Financial assets:
Cash and cash equivalents $ 1,552,743 1,552,743 1,497,457 55,286 -
Interest-bearing deposits at banks 23,663,810 23,663,810 - 23,663,810 -
Trading account assets 1,068,581 1,068,581 50,060 1,018,521 -
Investment securities 7,045,697 7,138,989 63,129 7,005,571 70,289
Loans and leases:
Commercial loans and leases 27,574,564 27,220,699 - - 27,220,699
Commercial real estate loans 37,637,889 36,816,580 - 277,911 36,538,669
Residential real estate loans 16,752,993 17,089,141 - 4,135,655 12,953,486
Consumer loans 16,570,421 16,554,050 - - 16,554,050
Allowance for credit losses (1,736,387 ) - - - -
Loans and leases, net 96,799,480 97,680,470 - 4,413,566 93,266,904
Accrued interest receivable 419,936 419,936 - 419,936 -
Financial liabilities:
Noninterest-bearing deposits $ (47,572,884 ) (47,572,884 ) - (47,572,884 ) -
Savings and interest-checking deposits (67,680,840 ) (67,680,840 )
- (67,680,840 ) -
Time deposits (3,899,910 ) (3,919,367 ) - (3,919,367 ) -
Deposits at Cayman Islands office (652,104 ) (652,104 ) - (652,104 ) -
Short-term borrowings (59,482 ) (59,482 ) - (59,482 ) -
Long-term borrowings (4,382,193 ) (4,490,433 ) - (4,490,433 ) -
Accrued interest payable (59,916 ) (59,916 ) - (59,916 ) -
Trading account liabilities (116,902 ) (116,902 ) - (116,902 ) -
Other financial instruments:
Commitments to originate real estate
loans for sale $ 43,234 43,234 - - 43,234
Commitments to sell real estate loans (18,429 ) (18,429 ) - (18,429 ) -
Other credit-related commitments (133,354 ) (133,354 ) - - (133,354 )
Interest rate swap agreements used
for interest rate risk management 1,076 1,076 - 1,076 -
With the exception of marketable securities, certain off-balance sheet financial
instruments and mortgage loans originated for sale, the Company's financial
instruments are not readily marketable and market prices do not exist. The
Company, in attempting to comply with the provisions of GAAP that require
disclosures of fair value of financial instruments, has not attempted to market
its financial instruments to potential buyers, if any exist. Since negotiated
prices in illiquid markets depend greatly upon the then present motivations of
the buyer and seller, it is reasonable to assume that actual sales prices could
vary widely from any estimate of fair value made without the benefit of
negotiations. Additionally, changes in market interest rates can dramatically
impact the value of financial instruments in a short period of time.
The Company does not believe that the estimated information presented herein is
representative of the earnings power or value of the Company. The preceding
analysis, which is inherently limited in depicting fair value, also does not
consider any value associated with existing customer relationships nor the
ability of the Company to create value through loan origination, deposit
gathering or fee generating activities. Many of the estimates presented herein
are based upon the use of highly subjective information and assumptions and,
accordingly, the results may not be precise. Management believes that fair value
estimates may not be comparable between financial institutions due to the wide
range of permitted valuation techniques and numerous estimates which must be
made. Furthermore, because the disclosed fair value amounts were estimated as of
the balance sheet
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--------------------------------------------------------------------------------date, the amounts actually realized or paid upon maturity or settlement of the various financial instruments could be significantly different.
22. Commitments and contingencies
In the normal course of business, various commitments and contingent liabilities
are outstanding. The following table presents the Company's significant
commitments. Certain of these commitments are not included in the Company's
consolidated balance sheet.
December 31, December 31,
2021 2020
(In thousands)
Commitments to extend credit
Home equity lines of credit $ 5,693,045 $ 5,563,854
Commercial real estate loans to be sold 324,943
363,735
Other commercial real estate 4,998,631
7,237,367
Residential real estate loans to be sold 233,257
1,026,118
Other residential real estate 924,211 665,259 Commercial and other 22,145,057 19,427,886 Standby letters of credit 2,151,595 2,241,417 Commercial letters of credit 31,981
27,332
Financial guarantees and indemnification contracts 4,211,797 4,220,531 Commitments to sell real estate loans
1,367,523 2,108,823
Commitments to extend credit are agreements to lend to customers, generally
having fixed expiration dates or other termination clauses that may require
payment of a fee. In addition to the amounts presented in the preceding table,
the Company had discretionary funding commitments to commercial customers of
$10.8 billion and $10.4 billion at December 31, 2021 and 2020, respectively,
that the Company had the unconditional right to cancel prior to funding. Standby
and commercial letters of credit are conditional commitments issued to guarantee
the performance of a customer to a third party. Standby letters of credit
generally are contingent upon the failure of the customer to perform according
to the terms of the underlying contract with the third party, whereas commercial
letters of credit are issued to facilitate commerce and typically result in the
commitment being funded when the underlying transaction is consummated between
the customer and a third party. The credit risk associated with commitments to
extend credit and standby and commercial letters of credit is essentially the
same as that involved with extending loans to customers and is subject to normal
credit policies. Collateral may be obtained based on management's assessment of
the customer's creditworthiness.
Financial guarantees and indemnification contracts are predominantly comprised
of recourse obligations associated with sold loans and other guarantees and
commitments. Included in financial guarantees and indemnification contracts are
loan principal amounts sold with recourse in conjunction with the Company's
involvement in the Fannie Mae Delegated Underwriting and Servicing program. The
Company's maximum credit risk for recourse associated with loans sold under this
program totaled approximately $4.0 billion at both December 31, 2021 and 2020.
At December 31, 2021, the Company estimated that the recourse obligations
described above were not material to the Company's consolidated financial
position. There have been no material losses incurred as a result of those
credit recourse arrangements.
Since many loan commitments, standby letters of credit, and guarantees and
indemnification contracts expire without being funded in whole or in part, the
contract amounts are not necessarily indicative of future cash flows.
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The Company utilizes commitments to sell real estate loans to hedge exposure to
changes in the fair value of real estate loans held for sale. Such commitments
are considered derivatives and along with commitments to originate real estate
loans to be held for sale are recorded in the consolidated balance sheet at
estimated fair market value.
The Company is contractually obligated to repurchase previously sold residential
real estate loans that do not ultimately meet investor sale criteria related to
underwriting procedures or loan documentation. When required to do so, the
Company may reimburse loan purchasers for losses incurred or may repurchase
certain loans. The Company reduces residential mortgage banking revenues by an
estimate for losses related to its obligations to loan purchasers. The amount of
those charges is based on the volume of loans sold, the level of reimbursement
requests received from loan purchasers and estimates of losses that may be
associated with previously sold loans. At December 31, 2021, the Company
believes that its obligation to loan purchasers was not material to the
Company's consolidated financial position.
M&T and its subsidiaries are subject in the normal course of business to various
pending and threatened legal proceedings and other matters in which claims for
monetary damages are asserted. On an on-going basis management, after
consultation with legal counsel, assesses the Company's liabilities and
contingencies in connection with such proceedings. For those matters where it is
probable that the Company will incur losses and the amounts of the losses can be
reasonably estimated, the Company records an expense and corresponding liability
in its consolidated financial statements. To the extent the pending or
threatened litigation could result in exposure in excess of that liability, the
amount of such excess is not currently estimable. Although not considered
probable, the range of reasonably possible losses for such matters in the
aggregate, beyond the existing recorded liability, was between $0 and $25
million at December 31, 2021. Although the Company does not believe that the
outcome of pending litigations will be material to the Company's consolidated
financial position, it cannot rule out the possibility that such outcomes will
be material to the consolidated results of operations for a particular reporting
period in the future.
23. Segment information
Reportable segments have been determined based upon the Company's internal
profitability reporting system, which is organized by strategic business unit.
Certain strategic business units have been combined for segment information
reporting purposes where the nature of the products and services, the type of
customer and the distribution of those products and services are similar. The
reportable segments are Business Banking, Commercial Banking, Commercial Real
Estate, Discretionary Portfolio, Residential Mortgage Banking and Retail
Banking.
The financial information of the Company's segments was compiled utilizing the
accounting policies described in note 1 with certain exceptions. The more
significant of these exceptions are described herein. The Company allocates
interest income or interest expense using a methodology that charges users of
funds (assets) interest expense and credits providers of funds (liabilities)
with income based on the maturity, prepayment and/or repricing characteristics
of the assets and liabilities. A provision for credit losses is allocated to
segments in an amount based largely on actual net charge-offs incurred by the
segment during the period plus or minus an amount necessary to adjust the
segment's allowance for credit losses due to changes in loan balances. In
contrast, the level of the consolidated provision for credit losses is
determined using the methodologies described in notes 1 and 5. The net effects
of these allocations are recorded in the "All Other" category. Indirect fixed
and variable expenses incurred by certain centralized support areas are
allocated to segments based on actual usage (for example, volume measurements)
and other criteria. Certain types of administrative expenses and bankwide
expense accruals (including amortization of core deposit and other intangible
assets associated with acquisitions of financial institutions) are generally not
allocated to segments. Income
195
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taxes are allocated to segments based on the Company's marginal statutory tax
rate adjusted for any tax-exempt income or non-deductible expenses. Equity is
allocated to the segments based on regulatory capital requirements and in
proportion to an assessment of the inherent risks associated with the business
of the segment (including interest, credit and operating risk).
The management accounting policies and processes utilized in compiling segment
financial information are highly subjective and, unlike financial accounting,
are not based on authoritative guidance similar to GAAP. As a result, reported
segment results are not necessarily comparable with similar information reported
by other financial institutions. Furthermore, changes in management structure or
allocation methodologies and procedures may result in changes in reported
segment financial data.
Information about the Company's segments is presented in the accompanying table.
Income statement amounts are in thousands of dollars. Balance sheet amounts are
in millions of dollars.
For the Years Ended December 31, 2021, 2020 and 2019
Business Banking Commercial Banking Commercial Real Estate Discretionary Portfolio
2021 2020 2019 2021 2020 2019 2021 2020 2019 2021 2020 2019
Net interest income(a) $ 518,940 $ 462,614 $ 451,307 $ 854,264 $ 864,149 $ 828,888 $ 643,415 $ 673,894 $ 692,526 $ 483,624 $ 486,831 $ 209,807 Noninterest income
123,854 103,837 113,855 302,974 276,791 289,558 218,189
208,367 214,970 (38,638 ) (1,735 ) 26,919
642,794 566,451 565,162 1,157,238 1,140,940 1,118,446 861,604
882,261 907,496 444,986 485,096 236,726 Provision for credit losses
10,928 25,928 16,501 101,060 73,099 25,580 67,405
107,210 1,537 3,622 1,508 3,608
Amortization of core deposit
and other intangible assets - - - - - - 1,060 1,060 1,060 - - - Depreciation and other amortization 1,106 1,482 2,066 2,362 2,421 2,353 35,623 28,187 26,963 194 285 279 Other noninterest expense 341,751 322,868
317,482 384,505 375,769 382,214 276,791
256,428 239,333 64,122 54,339 52,885 Income (loss) before taxes
289,009 216,173 229,113 669,311 689,651 708,299 480,725
489,376 638,603 377,048 428,964 179,954 Income tax expense
(benefit) 75,545 56,953
60,617 175,588 181,179 187,835 108,399
107,548 152,977 88,282 101,673 36,342 Net income (loss)
$ 213,464 $ 159,220 $ 168,496 $ 493,723 $ 508,472 $ 520,464 $ 372,326 $ 381,828 $ 485,626 $ 288,766 $ 327,291 $ 143,612
Average total assets
(in millions) $ 8,007 $ 8,152 $ 5,793 $ 28,559 $ 30,338 $ 28,142 $ 25,628 $ 25,792 $ 23,921 $ 22,262 $ 27,726 $ 29,081
Capital expenditures
(in millions) $ 1 $ - $ 1 $ 1 $ - $ 2 $ - $ - $ - $ - $ - $ -
For the Years Ended December 31, 2021, 2020 and 2019
Residential Mortgage
Banking Retail Banking All Other Total
2021 2020 2019 2021 2020 2019 2021 2020 2019 2021 2020 2019
Net interest income(a) $ 92,706 $ 52,712 $ 20,008 $ 1,125,953 $ 1,204,309 $ 1,389,788 $ 105,876 $ 121,808 $ 537,940 $ 3,824,778 $ 3,866,317 $ 4,130,264 Noninterest income
523,765 515,549 393,372 290,610 260,163 327,562 746,240
725,472 695,443 2,166,994 2,088,444 2,061,679
616,471 568,261 413,380 1,416,563 1,464,472 1,717,350 852,116
847,280 1,233,383 5,991,772 5,954,761 6,191,943 Provision for credit losses
(562 ) 1,785 382 55,692 108,268 122,135 (313,145 ) 482,202
6,257 (75,000 ) 800,000 176,000
Amortization of core deposit
and other intangible assets - - - - - - 9,107 13,809 18,430 10,167 14,869 19,490 Depreciation and other amortization 57,716 60,129 48,248 93,159 95,936 93,312 123,881
116,979 108,604 314,041 305,419 281,825 Other noninterest expense
332,491 332,028 273,067 804,762 764,262 784,718 1,082,993
959,258 1,117,668 3,287,415 3,064,952 3,167,367 Income (loss) before taxes
226,826 174,319 91,683 462,950 496,006 717,185 (50,720 )
(724,968 ) (17,576 ) 2,455,149 1,769,521 2,547,261 Income tax expense
(benefit) 53,866 40,667
19,355 121,464 130,745 189,611 (26,741 )
(202,396 ) (28,625 ) 596,403 416,369 618,112 Net income (loss)
$ 172,960 $ 133,652 $ 72,328 $ 341,486 $ 365,261 $ 527,574 $ (23,979 ) $ (522,572 ) $ 11,049 $ 1,858,746 $ 1,353,152 $ 1,929,149
Average total assets
(in millions) $ 6,463 $ 4,038 $ 2,611 $ 17,897 $ 16,438 $ 15,083 $ 43,853 $ 22,996 $ 14,953 $ 152,669 $ 135,480 $ 119,584
Capital expenditures
(in millions) $ 1 $ - $ 1 $ 53 $ 34 $ 76 $ 93 $ 138 $ 98 $ 149 $ 172 $ 178
(a) Net interest income is the difference between actual taxable-equivalent
interest earned on assets and interest paid on liabilities by a segment and a
funding charge (credit) based on the Company's internal funds transfer
pricing methodology. Segments are charged a cost to fund any assets (e.g.
loans) and are paid a funding credit for any funds provided (e.g. deposits).
The taxable-equivalent adjustment aggregated $14,731,000 in 2021, $17,288,000
in 2020 and $22,863,000 in 2019 and is eliminated in "All Other" net interest
income and income tax expense (benefit).
The Business Banking segment provides deposit, lending, cash management and other financial services to small businesses and professionals through the Company's banking office network and several other delivery channels, including business banking centers, telephone banking, Internet
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banking and automated teller machines. The Commercial Banking segment provides a
wide range of credit products and banking services to middle-market and large
commercial customers, mainly within the markets the Company serves. Among the
services provided by this segment are commercial lending and leasing, letters of
credit, deposit products and cash management services. The Commercial Real
Estate segment provides credit services which are secured by various types of
multifamily residential and commercial real estate and deposit services to its
customers. Activities of this segment include the origination, sales and
servicing of commercial real estate loans. Commercial real estate loans held for
sale are included in the Commercial Real Estate Segment. The Discretionary
Portfolio segment includes securities; residential real estate loans and other
assets; short-term and long-term borrowed funds; brokered deposits; and Cayman
Islands branch deposits. This segment also provides foreign exchange services to
customers. The Residential Mortgage Banking segment originates and services
residential real estate loans for consumers and sells substantially all
originated loans in the secondary market to investors or to the Discretionary
Portfolio segment. The segment periodically purchases servicing rights to loans
that have been originated by other entities. Residential real estate loans held
for sale are included in the Residential Mortgage Banking segment. The Retail
Banking segment offers a variety of services to consumers through several
delivery channels that include banking offices, automated teller machines, and
telephone, mobile and Internet banking. The "All Other" category includes other
operating activities of the Company that are not directly attributable to the
reported segments; the difference between the provision for credit losses and
the calculated provision allocated to the reportable segments; goodwill and core
deposit and other intangible assets resulting from acquisitions of financial
institutions; merger-related gains and expenses resulting from acquisitions; the
net impact of the Company's internal funds transfer pricing methodology;
eliminations of transactions between reportable segments; certain nonrecurring
transactions; the residual effects of unallocated support systems and general
and administrative expenses; and the impact of interest rate risk management
strategies.
The amount of intersegment activity eliminated in arriving at consolidated totals was included in the "All Other" category as follows:
Year Ended December 31
2021 2020 2019
(In thousands)
Revenues $ (55,556 ) $ (47,604 ) $ (48,559 )
Expenses (13,599 ) (14,038 ) (18,218 )
Income taxes (10,846 ) (8,824 ) (7,976 )
Net income (31,111 ) (24,742 ) (22,365 )
The Company conducts substantially all of its operations in the United States.
There are no transactions with a single customer that in the aggregate result in
revenues that exceed ten percent of consolidated total revenues.
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24. Regulatory matters
Payment of dividends by M&T's banking subsidiaries is restricted by various
legal and regulatory limitations. Dividends from any banking subsidiary to M&T
are limited by the amount of earnings of the banking subsidiary in the current
year and the preceding two years. For purposes of this test, at December 31,
2021, approximately $1.6 billion was available for payment of dividends to M&T
from banking subsidiaries. M&T may pay dividends and repurchase stock only in
accordance with a capital plan that the Federal Reserve Board has not objected
to.
Banking regulations prohibit extensions of credit by the subsidiary banks to M&T
unless appropriately secured by assets. Securities of affiliates are not
eligible as collateral for this purpose.
M&T and its subsidiary banks are required to comply with applicable capital
adequacy regulations established by the federal banking agencies. Failure to
meet minimum capital requirements can result in certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a material effect on the Company's financial statements. Pursuant to the rules
in effect as of December 31, 2021, the required minimum and well capitalized
capital ratios are as follows:
Well
Minimum Capitalized
M&T (Consolidated)
Common equity Tier 1 ("CET1") to risk-weighted assets 4.5 %
Tier 1 capital to risk-weighted assets 6.0 % 6.0 %
Total capital to risk-weighted assets 8.0 % 10.0 %
Leverage - Tier 1 capital to average total assets, as defined 4.0 %
Well
Minimum Capitalized
Bank Subsidiaries
CET1 to risk-weighted assets 4.5 % 6.5 %
Tier 1 capital to risk-weighted assets 6.0 % 8.0 %
Total capital to risk-weighted assets 8.0 % 10.0 %
Leverage - Tier 1 capital to average total assets, as defined 4.0 %
5.0 %
In addition, pursuant to capital regulations M&T and its bank subsidiaries are
each currently required to maintain a capital buffer of 2.5% composed entirely
of CET1 on top of the minimum risk-weighted asset ratios.
198
--------------------------------------------------------------------------------The capital ratios and amounts of the Company and its banking subsidiaries as of December 31, 2021 and 2020 are presented below:
M&T Wilmington
(Consolidated) M&T Bank Trust, N.A.
(Dollars in thousands)
December 31, 2021:
CET1 capital
Amount $ 11,844,833 $ 12,378,354 $ 779,521
Ratio(a) 11.42 % 11.98 % 31.22 %
Tier 1 capital
Amount 13,594,782 12,378,354 779,521
Ratio(a) 13.11 % 11.98 % 31.22 %
Total capital
Amount 15,902,833 14,170,434 780,791
Ratio(a) 15.33 % 13.71 % 31.27 %
Leverage
Amount 13,594,782 12,378,354 779,521
Ratio(b) 8.87 % 8.11 % 6.23 %
December 31, 2020:
CET1 capital
Amount $ 10,623,368 $ 11,550,462 $ 630,574
Ratio(a) 10.00 % 10.90 % 46.57 %
Tier 1 capital
Amount 11,873,317 11,550,462 630,574
Ratio(a) 11.17 % 10.90 % 46.57 %
Total capital
Amount 14,207,937 13,373,416 632,506
Ratio(a) 13.37 % 12.62 % 46.72 %
Leverage
Amount 11,873,317 11,550,462 630,574
Ratio(b) 8.48 % 8.27 % 10.73 %
(a) The ratio of capital to risk-weighted assets, as defined by regulation.
(b) The ratio of capital to average assets, as defined by regulation.
25. Relationship with Bayview Lending Group LLC and Bayview Financial Holdings,
L.P.
M&T holds a 20% minority interest in Bayview Lending Group LLC ("BLG"), a
privately-held commercial mortgage company. That investment had no remaining
carrying value at December 31, 2021 as a result of cumulative losses recognized
and cash distributions received in prior years. Cash distributions now received
from BLG are recognized as income by M&T and included in other revenues from
operations. That income totaled $30 million in 2021, $53 million in 2020 and $37
million in 2019.
Bayview Financial Holdings, L.P. (together with its affiliates, "Bayview
Financial"), a privately-held specialty financial company, is BLG's majority
investor. In addition to their common investment in BLG, the Company and Bayview
Financial conduct other business activities with each other. The Company has
obtained loan servicing rights for mortgage loans from BLG and Bayview Financial
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having outstanding principal balances of $1.6 billion and $1.9 billion at
December 31, 2021 and 2020, respectively. Revenues from those servicing rights
were $9 million, $10 million and $12 million during 2021, 2020 and 2019,
respectively. The Company sub-services residential mortgage loans for Bayview
Financial having outstanding principal balances of $74.7 billion and $68.1
billion at December 31, 2021 and 2020, respectively. Revenues earned for
sub-servicing loans for Bayview Financial were $153 million, $129 million and
$125 million in 2021, 2020 and 2019, respectively. In addition, the Company held
$62 million and $77 million of mortgage-backed securities in its
held-to-maturity portfolio at December 31, 2021 and 2020, respectively, that
were securitized by Bayview Financial. At December 31, 2021, the Company held
$210 million of Bayview Financial's $1.4 billion syndicated loan facility. In
early 2021 the Company purchased $965 million of delinquent FHA guaranteed
mortgage loans, including past due accrued interest, from Bayview Financial for
$1.0 billion. The servicing rights for such loans were retained by Bayview
Financial, but the Company continues to sub-service the loans
26. Parent company financial statements
Condensed Balance Sheet
December 31
2021 2020
(In thousands)
Assets
Cash in subsidiary bank $ 92,836 $ 100,593
Due from consolidated bank subsidiaries
Money-market savings 1,335,857 699,476
Current income tax receivable 754
-
Total due from consolidated bank subsidiaries 1,336,611 699,476 Investments in consolidated subsidiaries Banks 17,533,772
16,554,287
Other 220,496
125,988
Investments in trust preferred entities (note 20) 22,672 22,846 Other assets 98,010 92,170 Total assets $ 19,304,397 $ 17,595,360 Liabilities Accrued expenses and other liabilities $ 103,242 $ 96,664 Long-term borrowings 1,297,750 1,311,413 Total liabilities 1,400,992 1,408,077 Shareholders' equity 17,903,405 16,187,283
Total liabilities and shareholders' equity $ 19,304,397 $ 17,595,360
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Condensed Statement of Income
Year Ended December 31
2021 2020 2019
(In thousands, except per share)
Income
Dividends from consolidated subsidiaries $ 1,025,000 $ 708,500 $ 2,025,000
Income from Bayview Lending Group LLC 30,000 52,940 36,740
Other income 2,530 5,110 7,216
Total income 1,057,530 766,550 2,068,956
Expense
Interest on long-term borrowings 24,073 31,924 51,938
Other expense 35,406 33,704 25,236
Total expense 59,479 65,628 77,174
Income before income taxes and equity in
undistributed
income of subsidiaries 998,051 700,922 1,991,782
Income tax credits 6,052 1,984 8,313Income before equity in undistributed income of
subsidiaries 1,004,103 702,906 2,000,095
Equity in undistributed income of subsidiaries
Net income of subsidiaries 1,879,643 1,358,746 1,954,054
Less: dividends received (1,025,000 ) (708,500 ) (2,025,000 )
Equity in undistributed income of subsidiaries 854,643 650,246 (70,946 )
Net income $ 1,858,746 $ 1,353,152 $ 1,929,149
Net income per common share
Basic $ 13.81 $ 9.94 $ 13.76
Diluted 13.80 9.94 13.75
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Condensed Statement of Cash Flows
Year Ended December 31
2021 2020 2019
(In thousands)
Cash flows from operating activities
Net income $ 1,858,746 $ 1,353,152 $ 1,929,149
Adjustments to reconcile net income to net cash
provided
by operating activities
Equity in undistributed income of subsidiaries (854,643 ) (650,246 ) 70,946
Provision for deferred income taxes 10,356 1,079 5,263
Net change in accrued income and expense (23,047 ) (24,206 ) (34,525 )
Net cash provided by operating activities 991,412 679,779 1,970,833
Cash flows from investing activities
Proceeds from sales or maturities of
investment securities - - 100
Net investment in consolidated subsidiaries (199,000 ) 125,654 -
Other, net (2,777 ) 50,396 51,235
Net cash provided (used) by investing activities (201,777 ) 176,050
51,335
Cash flows from financing activities
Purchases of treasury stock - (373,750 ) (1,349,785 )
Dividends paid - common (580,260 ) (568,112 ) (552,138 )
Dividends paid - preferred (68,200 ) (68,256 ) (67,454 )
Redemption of Series A and Series C
preferred stock - - (381,500 )
Proceeds from issuance of Series I and Series G
preferred stock 495,000 - 396,000
Other, net (7,551 ) (5,992 ) (4,431 )
Net cash used by financing activities (161,011 ) (1,016,110 ) (1,959,308 )
Net increase (decrease) in cash and cash
equivalents 628,624 (160,281 ) 62,860
Cash and cash equivalents at beginning of year 800,069 960,350 897,490
Cash and cash equivalents at end of year $ 1,428,693 $ 800,069 $ 960,350
Supplemental disclosure of cash flow information
Interest received during the year $ 1,165 $ 1,493 $ 1,752
Interest paid during the year 20,457 30,913 49,451
Income taxes received during the year 53,067 11,528 6,251
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27. Recent accounting developments
The following table provides a description of accounting standards that were
adopted by the Company in 2021 as well as standards that are not effective that
could have an impact to M&T's consolidated financial statements upon adoption.
Required
date
of Effect on consolidated
Standard Description adoption financial statements
Standards Adopted in 2021
Clarifying The amendments clarify January The Company adopted the
the the following guidance: 1, 2021 amended
guidance effective
Interactions 1. That an entity should January 1, 2021 using a Between consider observable prospective transition Equity transactions that require method. The adoption did not Securities, it to either apply or have a
material impact on
Equity discontinue the equity the Company's consolidated
Method and method of accounting for financial statements.
Joint the purposes of applying
Ventures, the measurement
and alternative in the equity
Derivatives securities investments
and Hedging guidance immediately
before applying or upon
discontinuing the equity
method of accounting.
2. For the purpose of
applying the derivatives
and hedging guidance an
entity should not
consider whether, upon
the settlement of a
forward contract or
exercise of a purchased
option, individually or
with existing
investments, the
underlying securities
would be accounted for
under the equity method
of accounting or the fair
value option in
accordance with the
financial instruments
guidance. An entity also
would evaluate the
remaining characteristics
in the derivatives and
hedging guidance to
determine the accounting
for those forward
contracts and purchased
options.
203
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Required
date
of Effect on consolidated
Standard Description adoption financial statements
Standards Adopted in 2021
Simplifying The amendments remove January The amendments related to
the the following 1, 2021
separate financial
Accounting exceptions for
statements of legal
for Income accounting for income
entities that are not
Taxes taxes:
subject to tax should be
1. Exception to the applied on a
incremental approach retrospective basis for
for intraperiod tax all periods presented.
allocation when there The amendments related to
is a loss from changes in ownership of
continuing operations foreign equity method
and income or a gain investments or foreign
from other items (for subsidiaries should be
example, discontinued applied on a modified
operations or other retrospective basis
comprehensive through a
income); cumulative-effect
2. Exception to the adjustment to retained
requirement to earnings as of the
recognize a deferred beginning of the fiscal
tax liability for year of adoption. The
equity method amendments related to
investments when a franchise taxes that are
foreign subsidiary partially based on income
becomes an equity should be applied on
method investment; either a retrospective
3. Exception to the basis for all periods
ability not to presented or a modified
recognize a deferred retrospective basis
tax liability for a through a
foreign subsidiary cumulative-effect
when a foreign equity adjustment to retained
method investment earnings as of the
becomes a subsidiary; beginning of the fiscal
and year of adoption. All
4. Exception to the other amendments should
general methodology be applied on a
for calculating prospective basis.
income taxes in an The adoption did not have
interim period when a a material impact on the
year-to-date loss Company's consolidated
exceeds the financial statements.
anticipated loss for
the year.
The amendments also
simplify the
accounting for income
taxes by doing the
following:
1. Requiring that an
entity recognize a
franchise tax (or
similar tax) that is
partially based on
income as an
income-based tax and
account for any
incremental amount
incurred as a
non-income-based
tax.
2. Requiring that an
entity evaluate when
a step up in the tax
basis of goodwill
should be considered
part of the business
combination in which
the book goodwill was
originally recognized
and when it should be
considered a separate
transaction.
3. Specifying that an
entity is not
required to allocate
the consolidated
amount of current and
deferred tax expense
to a legal entity
that is not subject
to tax in its
separate financial
statements. However,
an entity may elect
to do so (on an
entity-by-entity
basis) for a legal
entity that is both
not subject to tax
and disregarded by
the taxing authority.
4. Requiring that an
entity reflect the
effect of an enacted
change in tax laws or
rates in the annual
effective tax rate
computation in the
interim period that
includes the
enactment date.
5. Making minor
Codification
improvements for
income taxes related
to employee stock
ownership plans and
investments in
qualified affordable
housing projects
accounted for using
the equity method.
204--------------------------------------------------------------------------------
Required
date
of Effect on consolidated
Standard Description adoption financial statements
Standards Not Yet Adopted as of December 31, 2021
The amendments reduce the
Changes to number of accounting January At January 1, 2022 the
Accounting models for convertible 1, 2022 Company did not have the
for debt instruments and types of instruments
Convertible convertible preferred Early affected by the amendedInstruments stock. The amendments adoption guidance and, therefore, the
and also reduce permitted adoption had
no impact on
Contracts form-over-substance-based its
consolidated financial
in an guidance for the statements.
Entity's derivatives scope
Own Equity exception for contacts in
an entity's own equity.
For convertible
instruments, embedded
conversion features no
longer are separated from
the host contract for
convertible instruments
with conversion features
that are not required to
be accounted for as
derivatives, or that do
not result in substantial
premiums accounted for as
paid-in capital.
Consequently, a
convertible debt
instrument will be
accounted for as a single
liability measured at its
amortized cost and a
convertible preferred
stock will be accounted
for as a single equity
instrument measured at
its historical cost, as
long as no other features
require bifurcation and
recognition as
derivatives. By removing
those separation models,
the interest rate of
convertible debt
instruments typically
will be closer to the
coupon interest rate on
the instrument. The
amendments also require
certain changes to EPS
calculations for
convertible instruments
as well as additional
disclosures relating to
conditions that cause
conversion features to be
met.
For contacts in an
entity's own equity, the
amendments revise the
derivatives scope
exception guidance as
follows:
1. Remove the settlement
in unregistered shares,
collateral, and
shareholder rights
conditions from the
settlement guidance.
2. Clarify that payment
penalties for failure to
timely file do not
preclude equity
classification.
3. Require instruments
that are required to be
classified as an asset or
liability to be measured
subsequently at fair
value, with changes
reported in earnings and
disclosed in the
financial statements.
4. Clarifiy that the
scope of the disclosure
requirements in the
Contracts in an Entity's
Own Equity section of the
Derivatives guidance
applies only to
freestanding instruments.
5. Clarify that the scope
of the reassessment
guidance in the Contracts
in an Entity's Own Equity
section of the
Derivatives guidance
applies to both
freestanding instruments
and embedded features.
205--------------------------------------------------------------------------------
Required
date
of Effect on consolidated
Standard Description adoption financial statements
Standards Not Yet Adopted of December 31, 2021
Issuer's The amendments January
At January 1, 2022 the
Accounting for clarify and reduce 1, 2022
Company did not have any
Certain diversity in an
of the types of
Modifications or issuer's accounting Early
instruments affected by
Exchanges of for modifications or adoption
the amended guidance and,
Freestanding exchanges of permitted
therefore, the adoption
Equity-Classified freestanding
had no impact on its
Written Call equity-classified
consolidated financial
Options written call options statements.
(for example,
warrants) that remain
equity classified
after modification or
exchange.
The amendments
clarify that:
1. A modification of
the terms or
conditions or an
exchange of a
freestanding
equity-classified
written call option
that remains equity
classified after
modification or
exchange should be
treated as an
exchange of the
original instrument
for a new instrument.
2. The effect of a
modification or an
exchange of a
freestanding
equity-classified
written call option
that remains equity
classified after
modification or
exchange should be
measured as follows:
a. For a modification
or an exchange that
is a part of or
directly related to a
modification or an
exchange of an
existing debt
instrument or
line-of-credit or
revolving-debt
arrangements, as the
difference between
the fair value of the
modified or exchanged
written call option
and the fair value of
that written call
option immediately
before it is modified
or exchanged.
b. For all other
modifications or
exchanges, as the
excess, if any, of
the fair value of the
modified or exchanged
written call option
over the fair value
of that written call
option immediately
before it is modified
or exchanged.
3. The effect of a
modification or an
exchange of a
freestanding
equity-classified
written call option
that remains equity
classified after
modification or
exchange should be
recognized on the
basis of the
substance of the
transaction, in the
same manner as if
cash had been paid as
consideration. The
effect of a
modification or an
exchange of a
freestanding
equity-classified
written call option
to compensate for
goods or services
should be recognized
in accordance with
the Stock
Compensation
guidance. In a
multiple-element
transaction (for
example, one that
includes both debt
financing and equity
financing), the total
effect of the
modification should
be allocated to the
respective elements
in the transaction.
206--------------------------------------------------------------------------------
Required
date
of Effect on consolidated
Standard Description adoption financial statements
Standards Not Yet Adopted of December 31, 2021
Lessor's The amendments update January The Company adopted the
Accounting the classification 1, 2022 amended guidance effective
for Certain guidance for January 1, 2022 using a
Leases with lessors. Under the Early prospective transition
Variable amended guidance adoption method. The Company does not
Lease lessors should classify permitted expect the guidance will have
Payments and account for a lease a material impact on its
with variable lease consolidated financial
payments that do not statements.
depend on a reference
index or a rate as an
operating lease if both
of the following
criteria are met:
1. The lease would have
been classified as a
sales-type lease or a
direct financing lease.
2. The lessor would
have otherwise
recognized a day-one
loss.
When a lease is
classified as
operating, the lessor
does not recognize a
net investment in the
lease, does not
derecognize the
underlying asset, and,
therefore, does not
recognize a selling
profit or loss.
Accounting The amendments require January The amendments should be
for that an entity 1, 2023 applied prospectively to
Contract (acquirer) recognize business combinations
Assets and and measure contract Early occurring on or after the
Contract assets and contract adoption effective date of the
Liabilities liabilities acquired in permitted amendments. However, if early
from a business combination adoption is elected, the
Contracts in accordance with amendments should be applied
with specified revenue (1) retrospectively to all
Customers recognition guidance. business combinations for
in a At the acquisition which the acquisition date
Business date, an acquirer occurs on or after the
Combination should account for the beginning of the fiscal year
related revenue that includes the interim
contracts as if it had period of early application
originated the and (2)prospectively to all
contracts and may business combinations that
assess how the acquiree occur on or after the date of
applied the revenue initialapplication.
guidance to determine
what to record for such The Company has not yet
contracts. The guidance decided which transition
is generally expected method will be applied to the
to result in an extentapplicable. The Company
acquirer recognizing does not expect the guidance
and measuring the will have a material impact on
acquired contract its consolidated financial
assets and contract statements.
liabilities consistent
with how they were
recognized and measured
in the acquiree's
financial statements
207--------------------------------------------------------------------------------
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